Why do M&A deals fail apart?

Spending over 15 years in M&A, working on over 100 deals as a consultant, investment fund manager, target’s CEO, and an investment banker, I’ve learned that a few key factors can help predict if an investment or M&A deal could collapse. Even after months or years of working on a deal, failure can still occur if you notice one of these factors. Listing all of them would require too much time and a comprehensive book, so I’ll focus on those that seem improbable to outsiders and deeply painful to me.

1. Mismatch between the buyer and seller’s styles. Many deals fail because the buyer and/or seller have different principles, tactics, languages, timing, and cultures. This is especially true in cross-border M&A deals, where one team works tirelessly to gather information quickly, while the other team takes time off to enjoy the holidays. Alternatively, the seller’s owner might be a self-made billionaire, while the buyer is a professional and emotionless individual focused on controlling everything. It’s not a lack of trust; it’s simply a fundamental difference in their personalities. For example, I value punctuality and sticking to promises. If a counterpart promises to do “A,” I assume it will be done. If not, it’s difficult for me to get along with them in the future because I’m biased.

2. Misbalanced or mistrusted partners involved (intermediary-seller/intermediary-buyer). Often, one party tries to hide important details or ambitions. For the seller, this could include fake accounts, tax problems, or poor working capital. For the buyer, cherry picking is a common issue. They may say they’re willing to buy all the assets, but then selectively choose the best ones first and leave the rest behind. Everyone understands this intention, but it can still lead to problems.

3. Pricing negotiation tactics: Every seller wants to sell their unique and valuable business at a premium, while every buyer wants to buy at a discount. However, this rarely happens in real life. If you believe a business you’re trying to acquire is great, be willing to pay enough for it. Unfortunately, I’ve seen owners try to get 10 times the value for a nice but not exceptional company. I’ve also witnessed various tactics used by sellers and buyers to manipulate the other party. However, any such behavior simply reveals the nature of the partner. If you’re in this business for a while, the chances are high that if you trick someone once, they’ll avoid dealing with you at all costs in the future. This will leave you missing out on the best opportunities in the future at the cost of your willingness to squeeze your partner today. Keep this in mind.