So what are some warning signs that trouble may be lurking beneath the waters ahead? James Rees, founder of M&A advisory firm Eaglehawk Advisory has been in the industry for over 20 years and knows how to keep your deal from running aground. Here, in his estimation, are three danger signs to watch out for.
1. A Change of Tack
A change of strategy mid way through a deal is often an indication of pending deal trouble. “Once you have a client on board and you have developed all the documents and the strategy, sometimes clients, especially a SME or private businesses, are influenced by their peers or by what’s happening in the market.” Rees says such distractions need to be avoided in favour of clear-minded, strategic focus. “You need to think of a transaction as a long tail that can ride through the market conditions, unless there’s a substantial market change.”
An M&A deal is often an exhaustive process, sometimes shockingly for participants yet to get their M&A sea legs. “deals require additional time and effort,” says Rees, “so they have a 40 hour a week job and the deal adds another 20 hours on top for six to nine months.” Rees says that can lead to trouble because key staff push work on to people without the expertise needed. “They could start delegating their deal responsibility to staff who shouldn’t be doing it to ensure their day-to-day tasks are completed ” Ironically, they could be diminishing, or even destroying the very asset they’re trying to sell.
3. Jumping Ship
As deals progress, conditions can change, and not all participants may like where things are headed. “People change their mind mid-transaction or actually jump ship,” says Rees. Planning early and establishing the motivations of critical staff can avoid this from happening. An example he gives is where a CFO realises halfway through a transaction that there’s no job for him going forward, and so he’s not going to be part of the transaction.” Here Rees advises that some smart pre-planning can avoid this from happening. “You can get around that by using incentives and transaction bonuses.”