Mergers and Acquisitions (M&A) are intricate business transactions that hold the promise of growth, synergy, and expanded market presence.
However, despite meticulous planning and strategic execution, delays in closing these deals are not uncommon, in fact, based on our business law firm’s internal numbers we estimate that about 90% of M&A deals have delayed closing.
Here are some of the top reasons behind delayed closings in M&A deals.
Table of Contents
- 1- Due Diligence Challenges
- 2- Negotiation Deadlocks
- 3- Financial and Valuation Complexities
- 4- Financing and Funding Issues
- 5- Third-Party Dependencies
- 6- Market Conditions and External Factors
- 7- Data and Information Discrepancies
- 8- Internal Resistance and Stakeholder Concerns:
- Conclusion
1- Due Diligence Challenges
Thorough due diligence is crucial to unearth any potential red flags or hidden liabilities that might impact the deal’s success. Delays can occur if unexpected issues, such as undisclosed financial liabilities, pending litigations, or compliance shortcomings, emerge during this process.
2- Negotiation Deadlocks
Negotiations are the foundation of any M&A deal. However, when parties involved can’t come to a consensus on key terms, such as valuation, payment structure, or post-merger roles, delays can be inevitable. Complex negotiations may require multiple rounds of discussions, causing timelines to stretch.
3- Financial and Valuation Complexities
Determining the right valuation for both entities is a delicate process that involves financial modeling, assessment of assets and liabilities, and market analysis. Differences in valuation methodologies or disputes over asset valuations can prolong the closing process as parties seek alignment.
4- Financing and Funding Issues
Securing the necessary financing for an M&A deal is essential for its successful completion. Delays can occur if there are challenges in securing loans, or equity investments, or if financial markets experience volatility that impacts the funding sources.
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5- Third-Party Dependencies
M&A transactions often involve multiple third parties, such as legal advisors, consultants, and financial institutions.
Delays can be triggered by these external dependencies, such as delays in document preparation, legal reviews, or valuation reports. Large law firms love large M&A deals, however, when they are dealing with small M&A deals (under $100M) they tend to procrastinate and fail to deliver their documents and complete their due diligence reviews in time.
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6- Market Conditions and External Factors
External economic and market conditions can significantly influence the progress of an M&A deal. Fluctuations in stock prices, changes in interest rates, or unexpected geopolitical events can impact the deal’s financing, valuation, or feasibility.
7- Data and Information Discrepancies
Accurate and complete information exchange is pivotal in M&A transactions. Delays may stem from discrepancies in financial data, operational metrics, or other critical information that necessitate additional verification and validation.
8- Internal Resistance and Stakeholder Concerns:
Internal stakeholders, including employees, management teams, and shareholders, might express concerns about the deal’s impact on their roles, job security, and investment. Addressing these concerns and gaining internal alignment can take time, causing delays.
Conclusion
While M&A deals offer the promise of growth and transformation, their complex nature means that delays are not uncommon.
By understanding the top reasons behind delayed closings in M&A deals, stakeholders can better anticipate challenges, allocate resources effectively, and devise strategies to mitigate potential roadblocks.
Ultimately, careful planning, transparent communication, and a flexible approach can help navigate these challenges and steer M&A deals towards successful conclusions.
If you would like to discuss your M&A deal with an experienced Silicon Valley Business Attorney please reach out to Sutter Law.
