What Are M&A Risks And How Do They Affect The Deals?

Mergers and acquisitions always bring many risks, which ultimately reduce a company’s financial strength, including an increased risk of failure.
These risks are often the result of faulty strategy planning. Below is a list of the most common risks that can affect mergers:

1. Equity-based risks – the companies’ post-merger valuation may be less than the stacked value of the two manufacturers …

2. Risks based on company resources. Doing a merger and acquisition transaction does not exclude financial risks. This type of risk includes:

— An increase in total taxes;

— An increase in the price of borrowed funds;

— Reduction of revenues;

— The risk of acquisition of securities by the owners of the shares, etc.

3. Infrastructure risks. They appear as a consequence of errors in the process of merger: reduction of productivity, reduction of working personnel, change of corporate values, the unpreparedness of staff to the change.

4. Operational risks. These risks include the risk of adverse effects from the massiveness of the company, due to the poor performance of business units, and the risk of changes based on technological deviations in the industry.

5. Risks based on the surrounding reality. This type of risk stems from negative processes in foreign policy relations, geopolitics and legislation, leading to a deterioration in the performance of the transaction: changes in prices and the number of tax payments, duties at customs, and the system of antimonopoly regulation.