Research consistently shows that M&A is usually value-destroying! As M&A professionals we continually take steps to try to limit the damage, and make M&A work: we get bankers and strategy consultants to opine; due-diligence drills leaves no stone unturned; we model the synergies in revenues and costs and sensitivity tables drive our risk assessment; we add layers of legal protection such as escrow holdbacks, liability carveouts, and earnouts; and we hire the best and the brightest for CorpDev and Strategy, because in the corporate tech world, that´s where huge business opportunities are realized and mistakes are made.
There is a lot in our nature that prevents us from seeing bad deals for what they are. We are all victims of Confirmation Bias – we see what we want to see and dismiss contrary evidence. 3 months into a deal we considerably discount any evidence against the deal, and give undue weight to evidence confirming our hypothesis that the deal is a good idea.
There is also Optimism Bias, in its various forms, which leads us to believe that we can do the deal or lead integration better than average, better than last time, better than others. Attribution Bias leads to us believe that others screw-up their deals, whereas our bad deals are the results of bad-luck.
In the meantime, time acts mostly against us. As a deal drags on – because we´re doing due-diligence, modeling, drafting etc – the target often losses interest since they realize they could have gotten a better deal elsewhere. Conversely, targets are terrified because often the distraction is considerably damaging to their ongoing business, and if the acquisition doesn´t materialize they will have a long difficult road to recovery ahead. As we´re more committed in time and resources, we´re less likely to see the deal in realistic hues.
Merjerz helps you see the deal for what it is, from the day you first think of it you´ll see the company for what it is, warts and all, and make an informed, balanced decision with eyes wide open.