Navigating Business Change with Confidence: Managing Acquisition Risk

By Katie Selves

Acquiring another business is often seen as the ultimate growth play. It can accelerate market entry, strengthen your position, and unlock new revenue streams. But here’s the reality: studies suggest that 70% to 90% of acquisitions fail. Why? Because acquisitions are among the most legally complex and risk-laden moves a business can make.

In this article, we explore the key risks in an acquisition strategy and what you need to know to overcome them.

Unclear Acquisition Strategy

The thrill of the chase can be intoxicating. Many CEOs enjoy the excitement of deal-making, but enthusiasm is not a strategy. Too often, the focus is on what to buy rather than why.

Ask yourself:

• Will this acquisition strengthen your existing product or market position?

• Will it open doors to new markets or enable a new product launch?

• Will it help you command higher prices or reduce costs?

Clarity on your objectives will guide valuation, negotiation, and, critically, your post-acquisition integration plan.

Overvaluing the Target

Optimism bias is a powerful force. Overvaluation often stems from unrealistic projections, overestimated synergies, inadequate due diligence, and executive hubris. The “right” price only emerges when the purpose of the acquisition is clear and supported by an independent, realistic assessment of financial benefits.

Inadequate Due Diligence

Due diligence is your first line of defence, but standard questionnaires and document reviews only go so far. Cultural misalignment, for example, can derail even the most promising deal.

I’ve seen acquisitions fail despite exhaustive legal, financial, and commercial due diligence because cultural differences destroyed anticipated synergies. On paper, the businesses looked like a perfect fit – yet a simple site visit would have revealed significant cultural misalignment.

In addition to formal legal, financial and commercial due diligence, spend time with the people who run the business. Visit their offices, meet the management team, review employee engagement data and glassdoor reviews, and speak to clients and suppliers. A 360° view of operations and culture is essential to avoid costly surprises.

Weak Warranties and Indemnities

Warranties and indemnities are your safety net when things go wrong. Without robust assurances on financial statements, contracts, IP, and litigation, hidden liabilities can surface post-completion.

Tailor warranties to the deal, align them with seller disclosures, and ensure indemnities are specific and unambiguous. Attention to detail here is not optional.

Lack of Buy-In from Key Staff

Deals don’t succeed on paper; they succeed through people. While bonuses and share options can incentivise, true engagement comes from a compelling vision and shared purpose.

Your communication plan, reward structure and post-acquisition strategy should lock in key talent and foster the motivation and discretionary effort you need to drive your business success.

Unrealistic Synergy Expectations

Economies of scale sound attractive, but integration is complex and time-consuming, and cost savings often fall short of projections.

Before relying on synergies, really question the compatibility of the two businesses, such as:

• Does the product fit your proposition without confusing customers?

• Will their customers want your products?

• Can your sales team sell theirs?

• Are IT systems compatible?

Realistic answers will help you assess integration speed and synergy potential.

Final Thought

Acquisition can be a powerful catalyst for growth, but only when approached with strategic clarity, rigorous due diligence, and a realistic view of integration challenges.

I help businesses navigate pivotal moments with clarity, confidence, and care.  If you’re planning an acquisition, and want to stress-test your strategy or prepare for due diligence, let’s talk.

This article is for general information purposes only and does not constitute legal advice. Specific legal or strategic advice should be sought separately and tailored to the particular circumstances of your business. If you would like to discuss how these issues apply to your organisation, please get in touch.