Common Merger and Acquisition Agreement Pitfalls and How to Avoid Them

10 June 20229 min reading

“M&A agreements come with risks. Any company considering a merger or acquisition needs to focus on the details – legal, financial and technological – to make a sound deal. It’s also essential to conduct due diligence and take culture into account. Working with experienced M&A attorneys makes the process easier.”

Teo Spengler

Startups are in the spotlight these days, especially in the technology sector. They tend to be creative, hungry, and energetic businesses. Larger companies can recharge or renew their energy with mergers and acquisitions (M&A).

Both mergers and acquisitions refer to the combining of companies, but they involve slightly different means of combination. In an acquisition, one company buys another company outright. A merger occurs when companies join together to create a new legal entity.

These types of deals can be important for the financial and economic health of the companies involved, but they come with pitfalls. Firms considering M&A should understand the risks for both the buyer and the seller.

Mergers and Acquisitions

Dealmaking — in the form of mergers and acquisitions — has been an important part of the business finance world for many years. According to the non-profit think tank Institute for Mergers, Acquisitions and Alliances, companies have announced more than 325,000 mergers and acquisitions valued at more than $34.9 trillion over the past 40 years. Global M&A value increased by 7 percent as recently as 2018, close to the five-year average, according to BCG’s 2019 M&A report.

Then the pandemic roared around the globe in 2020, disrupting almost every aspect of our lives, including financial deals. It’s no surprise that, during a year of shutdowns and quarantines, M&A activity dropped significantly in 2020. But the majority of polled dealmakers in the U.S. expect M&A activity to return to pre-pandemic levels in 2021 according to Deloitte’s Future of M&A Trends Survey.


As with any complex financial arrangements, putting together a merger or completing an acquisition brings issues and risks. M&A deals can be like a marriage, in that joining together often ends in divorce. According to an analysis of 2,500 M&A deals made between 1993 and 2010 conducted by LEK Consulting, 60 percent of deals ended up destroying shareholder value. When attempting a merger or acquisition, look out for these pitfalls.

Cultural mismatches

Mergers meld people, personalities, and work cultures, and failing to focus on culture is a common M&A pitfall. Both companies must encourage senior management to create a shared collaborative culture rather than an “us” versus “them” environment. Each party should learn about the other’s culture and employ a change management team to help with integration.

Poor communication

Joining companies too often lack transparency and excellent communication. To prevent this, management must open doors to communication. One good way is to use project management platforms built for M&A activity.

Using general counsel

Companies need to put maximum protections into an M&A agreement in case something goes wrong. These deals are beyond the experience of general counsel. Each company should hire a top M&A lawyer, which can save money, time, and energy down the road.

Keeping the same management

Once companies join, senior management needs to have merger experience and possess skills in dealing with M&A issues. Both the buying and selling parties must take care to proceed slowly and carefully while keeping a close eye on some common mistakes.


Buyers in an M&A deal need to act carefully in specific areas. Here are some of the pitfalls for buyers and tips on how to deal with them.

1. Chasing the deal without keeping an eye on the bottom line

Pursuing another company is as exciting, stimulating, and challenging as a courtship. CEOs can develop a lust for the deal that makes reality seem less important. But if a company combination doesn’t make sense from a financial, legal, or technological point of view, both companies may regret it. Moreover, overpaying for a target company destroys value for shareholders.

To avoid this pitfall: The CEO of the buyer must focus on the basics. What does the buying company hope to get through the deal? Is an M&A the best way to achieve those goals? Get a full valuation report with key business information — including tax returns, financial statements, the numbers of employees, and the organizational structure of the target company — to determine a price point and weigh the true value of the M&A.

2. Ignoring regulatory issues

The fact that two companies want to merge doesn’t mean that they can or will. Government regulatory agencies — such as the Federal Trade Commission — might have a say in the issue. Trying to push through an M&A against regulation will likely hit a dead end.

To avoid this pitfall: The buyer CEO should learn about the regulatory structure and compliance environment in the industry and consider hiring an experienced attorney. With knowledge and legal help, a buyer company can steer away from potential antitrust and other regulatory issues.