Common mistakes companies make during an M&A

Mergers and Acquisitions (M&As) are possibly one of the most common form of consolidating segments, and adding new products, in the chemical industry. Like any legal proceeding, they come with massive risks and opportunities alike. In a worst case scenario, one faces not only a loss of time and effort, but also monetary losses that can run up into multiple zero figures. In an excellent scenario, you have got yourself a deal that can bring in a lot of money, market opportunities, and even a lead over competitors.

Here are the mistakes to avoid so that you can reduce your risk of the first case situation:

Licenses and Patents

Don’t forget the difference between a brand and a technology. While a brand may be the biggest face of a particular product, there’s a good chance that it has bought the patent rights to a technology – or is paying a royalty to the patent holder. There is very little ROI in buying a company for its technology without acquiring the patent to the technology you’re after – so ensure that when you’re drafting a chemical M&A contract, it also accounts for full rights and access to the technology you wish to acquire.

Avoiding M&A Culture Clash

Culture clash in M&As can cover a range of differences – from simple product and marketing differences, to differences in philosophy and ethics. Or, on an even larger scale, literal culture clash with international M&As. It’s not just about due diligence – it’s about speaking with customers, taking full note of company stock, and relaying philosophy to clients. It’s also about recognizing the difference between a good deal and a deal for the sake of a deal.

Make Realistic Expectations, Not Estimated Assumptions

It is simply not enough to rely on projected synergies and estimated valuations. More often than not, these numbers are disfigured during execution of an M&A, which creates what is commonly called the winner’s curse. Avoid underestimating customer losses (McKinsey 2002), and increase the estimates of one-time costs. And, most importantly, compare projections to realities.

 

These facts might seem incredibly obvious, but often get lost in the fine print of a chemical M&A. With the right legal time to cover all your loopholes, and a strategy and finance team to accurately manage your projected accounts and profits, you can greatly reduce the risks of a bad M&A deal.

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