Our internal statistics show that in over 50% of cases, the desired objectives in the transaction are not met, and in 20% of cases, the operation has been a disaster. So why are there more and more M&A deals happening?
Our opinion is that the decision-maker has an unknown psychological bias, either positive or negative, towards making the deal. Some people are too cautious, while others are overly optimistic.
In this regard, our recommendation is that when the seller receives an approach from an interested party or, on the other hand, the buyer, about fifteen days before formalizing the transaction… they should pause and reflect a little. Although it may seem absurd, reflection does not always take place.
First, the decision that needs to be made must be identified objectively: the potential seller should consider whether they can truly continue competing or if there is a consolidation process underway, whether the management team is aligned with them… the buyer should consider whether the risk they are assuming is manageable, whether they will truly be able to integrate the company, whether there is no other way to achieve the same objective…
Then, be aware of the emotions one is experiencing at that moment and give them a clear name: excessive confidence, disdain, fear… Afterwards, analyze where this feeling comes from: from one’s character; from historical or recent experiences; from a third party… This way, distance can be created, and awareness of one’s thought process can be achieved. The thinking will have been objectified.
This way, one can visualize success and determine if it’s truly worth it. They may have sold the company and will dedicate themselves to another activity with the generated money, or they may have acquired a business that will allow them to enter a new distribution channel with manageable financial risk, or not…
Finally, one knows oneself well and knows what they are like: optimistic, pessimistic, hasty, slow… They truly understand their reptilian brain and will see if that previous vision is accurate or mistaken.
Certainly, some readers may think that this approach is theoretical while others may consider it good advice… at this point, the unconscious brain is already in operation… the reptilian brain.
Thus, our statistics show that out of completed operations, more than 50% of participants believe that the operations did not work, and according to our statistics, out of the ones that were not carried out, more than 50% should have been executed.
Josep Ma Romances, Founder and President of CLOSA Capital.