Mergers and Acquisitions
Challenges, Opportunities, and Best Practices
Andrew J. Sherman
(@AndrewJSherman) is a partner and
chair of the Corporate Department
in the Washington, D.C. office of
Seyfarth Shaw, co-chairs the firm’s
Global Franchising practice, and is
a top-rated adjunct professor in the
MBA and Executive MBA programs
at the University of Maryland and at
Georgetown University Law Center.
He is the author of several books,
including Harvesting Intangible Assets,
Franchising & Licensing, The Crisis of
Disengagement, and his latest release,
Mergers and Acquisitions from A to Z.
© Business Expert Press 978-1-94897-630-5 (2018)
www.businessexpertpress.com
Andrew J. Sherman
Abstract: When companies seek to accelerate growth,
boost revenue, improve cash flow, achieve economies of
scale, or outmaneuver competitors, one strategy stands
out: mergers and acquisitions. Once the buy-versus-build
analysis is complete, thousands of small and mid-sized
companies enter into these complex deals every year,
resulting in significant benefits, but setbacks and legal
snarls along the way may complicate matters. ­Mergers
and Acquisitions: Challenges, Opportunities, and Best
­Practices provides a guide to navigate the winding and
twisting road that is M&A. This article will not only dis-
cuss the best practices for achieving a successful M&A
deal, but also discuss the pitfalls and challenges various
deals may present.
Keywords: best practices, business, business challenges,
communication, compliance, cross-border, deal
killers, efficiency, external growth, inorganic growth,
M&A, mergers and acquisitions, organic growth,
organizational growth, postclosing challenges, risk,
success
Over the past few decades, we have seen countless
examples of companies—Amazon, Facebook, Cisco,
­
Microsoft, and Google—that have grown dramatically
­
and built revenues through aggressive acquisitions pro-
grams. Seasoned executives and entrepreneurs have
always searched for efficient and profitable ways to
­
­increase revenues and gain market share. The t­ypical
strategic growth options are as follows: organic,
­inorganic, or by external means.
Examples of organic growth are hiring additional
salespeople, developing new products, and expanding
geographically. The best example of inorganic growth
is an acquisition of another firm, something that is
­often done to gain access to a new product line. Finally,
­external revenue growth opportunities, including fran-
chising, licensing, joint ventures, strategic alliances,
and the ­ appointment of overseas distributors, are
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 Mergers and Acquisitions
available to grow companies as an alterna-
tive to m ­ ergers and acquisitions (M&A) as
a growth engine.
At the heart of all decisions regarding
M&A is a fundamental strategic question:
Are we better off buying a new capabil-
ity, market entry, customer base, ­earnings
­opportunity, and so on; attempting to build
it ourselves; or partnering with third ­parties
in an interdependent relationship? The ded-
ication of financial and h ­ uman ­ resources
to organize growth must be based on long-
term, sustainable value creation for the
company’s stakeholders, but achieving this
objective through growth may require a high
level of patience and may result in some lost
opportunities. The allocation of resources to
M&A will tend to expedite the achievement
of growth objectives, but it also increases
the level of risk if deals are not structured
and negotiated properly. Companies should
consider several factors in striking the right
balance between organic growth and M&A,
including the competitiveness, fragmen-
tation, and pace of the marketplace and
industry; ­access to and cost of capital; capa-
bilities of management and advisory teams;
strength and growth potential of current
core ­competencies; volatility and loyalty of
distribution channels and customer base;
degree to which speed to market and scale
are critical to the business; and degree to
which the industry is regulated.
Companies buy or sell for a variety of rea-
sons, but typically the motivations are similar.
Sellers are often motivated by the following:
desire to retire; lack of s­ uccessors; competi-
tion from business adversaries; ­inability to
compete; lack of capital to grow; inadequate
distribution systems; elimination of p ­ ersonal
guarantees; inability to ­ diversify; age and
health concerns; conflict among owners;
or loss of key people or customers. Buyers,
on the other hand, are often ­motivated by
the following: d ­esire to grow; opportunity
to ­diversify; value driven ­acquisition strat-
egies, opportunity to add new distribution
­channels; gaining a­ ccess to new or emerging
technologies; the elimination of competition;
2 © Business Expert Press 978-1-94897-630-5 (2018)
www.businessexpertpress.com
the opportunity to increase profits; the need
to deploy key people or resources; and the
strategic fit between the buyer and seller’s
current operations.
In 2017, over 50,600 M&A transactions
were announced, valuing over $3.5 t­rillion.
But these numbers do not tell the whole
story as thousands of deals fail each year,
and not all deals are good. While n ­ obody
plans to enter into a bad deal, many
well-intentioned entrepreneurs and busi-
­
ness executives enter into M&A that they
later regret. Classic mistakes include a lack
of a­ dequate planning, an overly aggressive
timetable to closing, a failure to really look
at possible postclosing integration prob-
lems, and, worst of all, projecting synergies
to be archived that turn out to be illusory.
But what is synergy? The key premise of
synergy is that “the whole will be greater
than the sum of its parts.” But the quest for
synergy can be deceptive, especially if there
is inadequate communication between
buyer and seller, a situation that usually
leads to a misunderstanding regarding what
the buyer is really buying and what the
seller is really selling. Every company says
that it wants synergy when doing a deal, but
few take the time to d ­ evelop a transactional
team, draw up a joint mission statement of
the ­objectives of the deal, or resolve post-
closing o ­ perating or financial problems on a
timely basis. We must work hard to improve
M&A failures to create postclosing value
rates e­ stimated as high as 80 percent.
Deal killers come in all shapes, sizes,
and varieties, with different reasons, jus-
tifications, and rationalizations. They can
emanate from the buyer, the seller, or
any number of third parties, such as lend-
ers, investors, key customers or suppliers,
­professional advisers, or all of the afore-
mentioned. Some deal killers are legitimate
some deals deserve to die, and some are
emotional, financial, or strategic in ­nature.
They can be very costly to all parties to the
transaction, especially when significant
costs have already been incurred. And for
certain advisers and investment bankers,
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 Mergers and Acquisitions
they mean not getting paid. Clearly, deal
killers inflict a lot of pain along their path
of destruction of a transaction.
In troubled financial times, a deal killer
can come as a shock and can be based on
something as simple as a stark difference
in the mind-set of the parties or lender, or
even investors’ thoughts about the ­markets.
In strong and frothy economic times, deal
killers will be rooted in greed and will o ­ ften
be based on disagreements and overin-
flated valuations.
Following the high-profile failure of
several buyouts between 2008 and 2010,
­
sellers resisted provisions that permit a
buyer, under certain conditions, to walk
away simply by paying a fee. But buy-
ers, who face their own challenges in se-
curing commitments from banks to fund
deals, began pushing back. Many transac-
tions ­derailed in 2008 and 2009 because of
­factors such as deteriorating global finan-
cial market conditions, buyers developing
cold feet in the middle of the deal, seller
­remorse, disappointment caused by record
low ­ valuations, or even an overall trans-
actional fatigue resulting from a loss of
­momentum among parties that are running
out of steam. In 2008 through 2009, over
2,000 r­eported transactions derailed due
to market or other conditions and count-
less smaller- and mid-market unreported
transactions never made it to the closing
table despite the time, effort, and good in-
tentions at the outset. Protection and risk
allocation terms that hold significance in
deals are being more hotly contested. M&A
players seem content to remain on the
bench rather than be on the playing field;
a ­notable number of them have retired
hurt. In some instances, an immediate
surfacing of postclosing i­ntegration issues
involved posttransactional shareholder
­ a lender to a buyer coming in at a higher
value c­ reation challenges that killed what
would have been a deal to die for 2 years
ago. The volatility in the stock markets, one
of the major driving factors of M&A, has
further increased the uncertainties arising
in the middle of the deal. In 2010 through
© Business Expert Press 978-1-94897-630-5 (2018)
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2017, market conditions improved and then
strengthened, which together with more
robust valuations and project management
tools helped keep more M&A transactions
on track toward closing.
In M&A booms as well as in tight
­financial markets, most deal killers can be
put into one of five categories: (1) price
and valuation, (2) terms and conditions,
(3)  ­allocation of risk, (4) third-party chal-
lenges, and (5) cold feet due to oscillating
financial conditions.
Keeping Transactions on Track:
Avoiding Closing Deal Killers
and  Derailers
The first step in keeping a transaction on
track (and greatly increasing the chance of
avoiding deal killers) is to have strong com-
munication and leadership by and among all
parties and key players to the transaction. As
in football, each team (e.g., buyer, seller, the
source of capital, and so on) should a­ ppoint a
quarterback who will be the point person for
communication and coordination. Too many
lines of ­communication will ­create confu-
sion and misunderstanding—­conditions that
­allow a deal killer to pollinate. The more the
­quarterbacks ­coordinate, communicate, and
­anticipate p­ roblems with the ­various mem-
bers of their team and promptly ­discuss key
issues with the quarterbacks of the other
teams, the greater the chances that the
transaction can and will close.
When a potential deal killer does arise,
each quarterback should first diagnose the
source of the problem. Where is the issue
coming from and what can be done to fix
it? A deal killer for one party may not be a
deal killer for another party. The old adage
“Where you stand often depends on where
you sit” clearly applies here. For example,
lending rate than anticipated may signifi-
cantly alter the attractiveness of the trans-
action from the buyer’s perspective but
may be viewed as a nonissue by the seller.
Once the source of the deal killer has
been analyzed, the respective quarterback
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