Reason why Mid-Market Mergers & Acquisitions can fail

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Reasons why Mid-Market Mergers and Acquisitions can fail and how to avoid them

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Reasons why Mid-Market Mergers and Acquisitions can fail and how to avoid them

By , March 9, 2020
mid-market mergers and acquisitions

Based on the latest research of mid-market business owner succession events such as mergers and acquisitions – two key negative outcomes sit at the top of the list for the 49% of owners who experienced negative consequences:

  1. Disruption of company culture – 23% of owners say the culture was significantly changed in the short-term after the transaction.
  2. Increased employee turnover – 20% experienced a substantial increase in turnover in the six months after the succession event.

One of the great advantages of privately owned (often family-owned) business is the speed at which they can operate – especially compared to their larger, corporate counterparts who are often bogged down by complicated approval processes, top-heavy organisational charts and slow decision making and implementation. This has a significant impact on employees and culture.

Employee engagement is often stronger in smaller businesses: communication is more regular, direct and open. Reporting lines are generally flatter with only a few levels of management: only a few steps between owners and the most junior employee.

Culturally, employees feel more included, valued and listened to, which leads to much higher levels of loyalty and a better company focused employee, as well.

To “fix” these issues many businesses are turning to Stay Bonuses – an employee bonus specifically designed for a transaction and held for a fixed period post-sale to lock in the employees. Typically 2 years after the sale date, employees receive a bonus of 20% of their annual salary, but they have to still be employed by the business (i.e have stayed) to receive the bonus.

There is also a rapidly growing body of experts in culture change, transition implementation consultants, for instance. I saw on LinkedIn recently a culture integration agent – focused on merging, integrating or joining the culture of two or more businesses.

According to Wikipedia, culture is influenced by factors such as history, type of product, market, technology, strategy, type of employees, management style, and national culture. Culture includes the organisation’s vision, values, norms, systems, symbols, language, assumptions, environment, location, beliefs and habits.

This is not something that is going to be influenced quickly or easily by a consultant and unfortunately, this may have a significant impact on both the buyer (financial) and the seller (who are often very focused on the legacy aspects of employees and other stakeholders). So despite the substantial growth opportunities offered by a merger or acquisition of a business, there is lots to be considered and managed to avoid potential failure. 

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.