Just imagine you’ve spent months (or even years) searching for the perfect business to acquire. You’ve found one that seems to tick all the boxes. It’s profitable, established and operating in a sector you specialise in (or are looking to specialise in).
You shake hands, sign the papers and take the leap. But six months later, you’re dealing with staff turnover, revenue decline and systems that won’t integrate with your own. What went wrong?
Buying a business can be an exciting growth strategy. But it’s also complex. In this article, we’ll walk you through the 7 most common mistakes in business acquisition – and show you how to avoid them.
7 most common business acquisition mistakes
Many of the common problems of mergers and acquisitions stem from poor planning, mismatched cultures and lack of due diligence. We explain this in more detail below.
1. There’s no strategy ‘behind the buy’
Some buyers fall into the trap of opportunistic acquisitions. They buy simply because a business is available or looks attractive on the surface. In other words, they may suffer from ‘shiny object syndrome’.
But if the acquisition doesn’t serve a clear strategic goal, it is much more likely to become a burden rather than a benefit.
You need to ask things like –
- Does this business expand your market share?
- Will it give us access to new products or capabilities?
- Does it fill a critical gap in our portfolio?
These questions are critical to answer.
Without a solid identifiable strategy, you may end up with a business that drains your resources, overlaps with your current offering or steers you away from your core focus.
How to avoid this mistake
Start with strategy. Before you even start looking for acquisition targets, define your long-term goals.
Build a business case for any potential deal and ensure it aligns with your mission, market and capabilities. Let strategy, not emotion, guide your decision-making.
2. Poor (or limited) due diligence
Inadequate due diligence is one of the key problems that unravels after a business acquisition.
You may be tempted to rush this step, especially if the seller is pressuring you to close quickly or if competition is fierce.
Financials aren’t the only thing to consider. You must also dig into:
- Current legal obligations
- Supplier and customer relationships
- Intellectual property ownership
- HR practices and employee entitlements
- Licences and regulatory compliance
Skipping over these kinds of details could mean missing critical red flags – like debt or becoming tied up in legal issues you didn’t see coming.
How to avoid this mistake
Don’t cut corners. Engage others to conduct a full scope of due diligence. This includes legal, financial, tax, HR and operational.
Make sure you uncover any hidden liabilities or risks before finalising the deal. If something seems vague or overly optimistic, investigate further.
3. Paying too much for the business
It’s easy to get emotionally invested in a deal and overestimate its value. But paying more than a business is truly worth can destroy long-term ROI and lead to poor cash flow post-acquisition.
Overpayment is often driven by unrealistic revenue projections, competitive bidding wars or being too eager to “win.”
It’s also important to consider post-acquisition investment – you may need to spend on upgrades, integration or staffing.
You would be in a very unfortunate situation if you realised you needed to spend even more money post-acquisition because certain systems weren’t quite up to the standards you expected.
How to avoid this mistake
Base your offer on evidence, not emotion. Use qualified valuers to assess the business based on tangible data: earnings, cash flow, assets, market trends and risk profile.
Consider comparable sales and apply multiple valuation methods. Factor in your future costs and expected ROI.
4. The business you’re buying does not match your culture
Culture clash is one of the most underestimated problems with mergers. Even if two companies appear compatible on paper, there is always more to the story.
Conflicting values, management styles, or incompatible communication habits can lead to tension, turnover and stalled performance.
For example:
- A relaxed startup culture may clash with a highly structured corporate environment.
- A company with hierarchical leadership may resist a buyer’s collaborative approach.
Differences in customer service standards could damage brand reputation.
How to avoid this mistake
Evaluate culture like you evaluate finances. Spend time in the business, observe team dynamics and talk to key employees.
If misalignment is evident, consider whether the culture can evolve – or if it’s a dealbreaker.
5. Limited (or no) integration planning
Without a plan to integrate operations, systems, and people, then the inevitable will happen.
Poor integration planning can in term cause things like –
- Data silos or incompatible IT systems
- The redundancy of particular positions
- Delayed service delivery or customer dissatisfaction
- Cultural disconnection
In other words, inadequate integration planning causes confusion and inefficiency – which can evolve into a commercial nightmare.
How to avoid this mistake
Start integration planning before the deal closes. Identify what will change, what will stay the same and who’s responsible for what.
Create a transition timeline, budget for integration costs and communicate expectations clearly. We’d recommend even assigning an internal or external project manager to oversee execution.
6. Failing to communicate with everyone involved (especially employees)
Change brings uncertainty. And silence fuels anxiety. One of the most common problems of mergers and acquisitions is poor communication.
If employees, customers or suppliers are left in the dark, trust will erode and people will think the worst. Employees may jump ship, customers may look elsewhere and suppliers may hesitate to continue partnerships.
Remember – how you communicate the acquisition can shape how it’s received.
How to avoid this mistake
Create a robust communication plan. Keep employees informed from the beginning (within confidentiality limits) and give them a vision of what the future looks like.
Be transparent about changes and provide regular updates. Encourage feedback and create forums for questions.
And remember – communication should be ongoing, not a one-off announcement.
7. Failing to obtain professional advice
Buying a business is one of the biggest decisions you’ll make. Yet many buyers try to cut costs by doing it all themselves, or just relying on the seller’s advisors.
This can result in missing a lot – from becoming tangled in missing legal disputes, paying too much tax, agreeing to a deal structure that won’t work for your business in the long term, and more.
Business acquisition involves complex contracts, negotiations, risk assessment and regulatory compliance. Trying to DIY it puts you at serious risk.
How to avoid this mistake
Engage experienced professionals. Work with a team of M&A lawyers and accountants to protect your interests.
Legal counsel can help with contract reviews, warranties, indemnities and navigating employment law issues that arise.
Professional advice can ultimately uncover risks you hadn’t considered, and ensure the deal is watertight.
Do you need legal advice to assist with your business acquisition?
There’s no doubt that business acquisition can deliver incredible growth. But it also comes with serious risk, especially if you fall into one of the seven traps above.
The best way to avoid these problems with mergers is by having a strategy, doing the work, and surrounding yourself with those who can guide you.
At Prosper Law, we help buyers navigate the legal complexities of business acquisition. From deal structuring to due diligence and contract negotiation, we’ll help you make informed decisions and safeguard your investment.
Looking to acquire a business? Contact Prosper Law today to speak with an experienced commercial lawyer and get the right advice from day one.
