Large business transactions can be valuable for all organizations involved. Whether one company buys another or two businesses negotiate a merger, such transactions can make companies more competitive or efficient.
Factors ranging from patented technology and real estate holdings to top-tier talent can motivate one company to want to acquire or merge with another. Such transactions often involve months of preparation and major financial undertakings. There are also long-term implications after the merger or acquisition. In some scenarios, a party that previously proposed a merger or acquisition may need to consider canceling the transaction.
What situations may justify the end of merger or acquisition negotiations?
A loss of key resources
Companies don’t always retain the resources that are most valuable to them. Perhaps one business loses an intellectual property lawsuit and no longer has a patent license that allows it to use the specific production process. Maybe multiple people from one organization’s engineering department exit the company simultaneously to start their own firm. When the business assets that make the transaction profitable are no longer available, the transaction may no longer be worthwhile.
The discovery of hidden liability
Sometimes, details that were not readily available during a review of public information turn up during merger or acquisition negotiations. Perhaps interviews with workers at the other business indicate repeated violations of employment laws that could lead to a lawsuit against the company after the transaction. Maybe there has been a slow but study uptick in the number of complaints brought by clients or customers that makes it clear that the company could lose its market share or potentially face litigation. Such concerns might diminish the financial benefit derived from the transaction.
Concerns about integration complications
Sometimes, the difference in cultures between the two organizations is too extreme. Other times, there may be too many redundant positions to address without causing massive operational disruptions. A merger or acquisition that initially looks good on paper may become increasingly impractical as leaders at the companies involved attempt to address the practical requirements of the transaction. If it is unlikely that the teams can work together or that the company can rework operations in an efficient manner, the merger or acquisition might ultimately cost too much and may put the company at risk of insolvency.
Recognizing when a business transaction could be more harmful than good can help executives and owners better understand when they need to abandon a proposed transaction. Not all mergers or acquisitions are ultimately successful or mutually beneficial.