31% of buyers buy a company without generating financial gains: the pitfalls of poorly prepared takeovers

Taking over a business is a dream shared by many entrepreneurs. However, 31% of buyers end up acquiring a business without generating financial gains , according to the most recent data. This figure illustrates a harsh reality: the euphoria of an acquisition can mask fundamental flaws in the selection and post-acquisition management process.

Why do these failures occur?

There are many reasons behind this worrying statistic. Here are three main factors that explain why some buyers buy companies they never should have:

Insufficient diligence

The due diligence process is often rushed or poorly structured. In their haste, some buyers do not sufficiently check:

• The real financial health of the company.

• Relationships with key customers.

• Legal and contractual obligations.

  Analyzing financial data too quickly or relying too much on the seller's projections can result in an ill-advised acquisition.

Confirmation bias

Buyers, especially those with a strong desire to succeed, often fall into the trap of confirmation bias. They look for evidence to validate their purchase decision while ignoring warning signs. For example, a buyer might downplay a decline in revenue by justifying it as a temporary fluctuation.

Excessive anxiety

The pressure to close a deal can lead buyers to make rash decisions. Heightened anxiety about competition or the risk of losing the opportunity can cloud their judgment. In some cases, they end up overpaying for a declining business.

Challenges for new leaders

Even after acquisition, problems often persist:

• Lack of investor support : Buyers, especially when partnering with investment funds or lenders, sometimes struggle to secure strategic support. High financial expectations and a lack of shared vision can limit their actions.

• A Steep Learning Curve : New leaders often underestimate the complexity of operationally and strategically managing an acquired business, which affects overall performance.

How to avoid these pitfalls?

Here are some recommendations to reduce risks and maximize the chances of success:

1. Do more due diligence : Don’t leave any important item off your radar. Hire experts to audit the company’s finances, contracts, and market outlook.

2. Surround yourself with a mentor or experienced advisor : The advice of an objective third party can help counter confirmation bias and make decisions based on facts.

3. Plan the post-acquisition phase : Early on, identify how you will manage the business, engage employees, and develop a strategy to improve performance.

A warning for ambitious buyers

Buying a business without generating financial gains is not only a personal disappointment, it is also a significant financial risk. For buyers, success lies not only in the acquisition, but in the management and growth after the acquisition. Rigorous preparation, objective analysis and a clear strategy are the keys to avoid being part of this 31%.

References:

1. Deloitte. “The Importance of Due Diligence in Business Acquisitions.” » 2021 report.

2. Harvard Business Review. “Bias in Decision-Making: How to Mitigate Risk in M&A.” » 2020.

3. Forbes. “Post-Acquisition Challenges and How to Overcome Them.” » 2022.