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REASONS FOR CATASTROPIC OUTCOMES
Hundreds of factors can cause a deal to buckle. Here are just a few:
Bad due diligence. Sometimes the buyer doesn't pick up on a seller's fraudulent or other criminal activities. A classic case is Cendant Corp., Henry Silverman's merger of Hospitality Franchise Systems with CUC International. (See chapter 6 for the full story.)
More often it's a failure to look closely enough at trends in the financials. Another big problem area is legal issues, where some sellers have ceded their intellectual property rights. Also, sometimes paperwork is dicey—the seller seems to have strong contractual bonds with customers, but when you look at the small print, you find the documents are dicey.
Information technology integration. Buyers often tend to underestimate the costs of making disparate technology systems work together.
Blind spots. Many buyers tend to look at the benefits, not the warning signs. This applies not only to due diligence but also to the entire buying process.
Culture clash. Sometimes the two companies find they just can't get along. To take a classic dichotomy, perhaps it's a difference between East Coast and West Coast ways of doing things. This problem source is notoriously tough to detect until after the deal is done. Cultural differences actually can be a good thing, but they need to be recognized and analyzed.
Power struggles. When the acquired company's founder comes along as part of the deal, trouble is quite likely. The buyer usually wants the sold company's ex-owner or chief executive to be involved but to "know his place" -- which doesn't always sit well with the seller.
Overextension. Sometimes the purchaser devotes too much time and resources to an acquisition and thus ignores its existing, core business.
