The total global value of corporate mergers and acquisitions (M&A) reached $5.9 trillion in 2021. For 2022, the figure is expected to reach $4.7 trillion. This would make 2022 the second-best year on record for the M&A market after 2021.

Clearly, robust M&A opportunities exist for companies looking to stimulate growth, increase market share, and influence supply chains. Despite those potential benefits, however, M&A deals are also fraught with serious risks.

Below, we explore five risks that can jeopardize the outcome of an M&A deal or prevent a company from capturing the expected benefits.

1. Poor Due Diligence

What it Means

Due diligence is essential for all mergers & acquisitions. It allows the acquiring company to discover important facts about the seller, such as:

  • Contracts
  • Financial stability
  • Insurance
  • Customer agreements
  • Distribution agreements
  • Compensation agreements
  • Employment contracts
  • Liabilities, such as debts

These details may affect the buyer’s decision to merge with or acquire the company. Such insights also allow the acquirer to adjust its expectations, inform negotiations, and reduce the risk of legal or financial problems. With proper due diligence, the buyer can avoid entering risky and potentially catastrophic business deals.


Inadequate due diligence can cause serious problems. For one, it can result in poor valuation. The valuation process guides the buyer and seller to agree on a mutually acceptable purchase price, which is why it requires thorough due diligence.

Poor due diligence also increases the buyer’s risk of unexpected litigation or tax issues. Ultimately, the buyer may make a poor decision that could damage its financial position or reputation.

Risk Mitigation Strategies

Proper due diligence is crucial for any M&A deal. The buyer must start the process early with an experienced team that has business, legal, and financial expertise, as well as industry knowledge. That team must create a master due diligence request list so the acquirer can ask the right questions during the process.

2. Overpaying for the Target Company

What it Means

In M&A transactions, buyers are frequently under a lot of pressure to close the deal. In their rush to complete the transaction, they may end up overpaying for the target company rather than negotiating a fair price that could create market value and provide a satisfactory investment return.

Buyers may also use overly optimistic assumptions to justify the transaction or follow poor valuation practices, resulting in overpayment.


Overpayment is a common M&A risk. Even if the deal is well-conceived and implemented, overpayment increases the cost and risk for the buyer. It also increases the probability that the buyer may be surprised by unforeseen circumstances that compound the pain of overpayment.

Risk Mitigation Strategies

The buyer must understand the issues that often lead to overpayment. For example, intermediaries such as investment bankers focus on providing the seller with a negotiating edge. They don’t act in the buyer’s interest, so an ignorant buyer risks falling into the overpayment trap.

The tendency to overpay also increases when:

  • A buyer is concerned that a competitor might buy the target first and get a market advantage.
  • The normalized and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is made to look especially rosy.
  • The selling company’s stock includes a built-in premium in anticipation of the company being acquired by a company with deep pockets.

In addition to recognizing these overpayment “levers,” acquirers must also produce a comprehensive valuation report. It’s essential to collect crucial data about the target, including stock premiums, tax returns, organizational structure, and shareholder agreements to inform the report and guide their negotiations.

See also

Driving Organizational Strategy Adoption: ERM Checklist

3. Overestimating Possible Synergies

What it Means

One goal of an M&A activity is to leverage the synergies of the two companies to boost growth and competitiveness. Synergy can be either intangible, such as “becoming a key player in the market,” or tangible such as “increase cost efficiencies by X percent.”


Tangible synergy is rooted in economic reality, so it’s easier to put a price on it. On the other hand, if the buyer is willing to pay for intangible synergies that are not rooted in economic reality, and therefore can’t be measured easily, then the buyer ends up overpaying for the deal.

Buyers often overestimate synergies, too. According to McKinsey, this optimism strikes at least 25 percent of mergers and results in a 5 to 10 percent valuation error.

Additionally, buyers often underestimate how long it will take to achieve the synergies, resulting in unrealistic expectations. In real life, it’s not always easy to integrate companies, people, and processes.

Risk Mitigation Strategies

Buyers must remain conservative when estimating synergies. They must reduce top-line synergy estimates, especially around revenues and access to a target’s customers. They should also think about possible post-deal problems, such as losing the target company’s customers and difficulties with reconciling teams between the two organizations.

4. Integration Challenges

What it Means

Integrating processes, systems, and workforces after an M&A is one of the most complex aspects of the deal. A robust post-merger integration (PMI) process is vital to reduce the complexity. This process brings the merged companies together to maximize synergies and assure that the deal generates its expected value as soon as possible.


A poor PMI process can reduce employee engagement, increase turnover, affect customer engagement, and erode sales and profitability. In the meantime, the buyer may miss its growth and cost targets as the two business units struggle with these growing pains.

Processes and systems can also affect the transition if they are not properly integrated. Communication challenges and problems merging two different corporate cultures may also hinder the success of the deal.

Risk Mitigation Strategies

Companies that efficiently achieve integration post-merger can deliver 6 to 12 percent higher total returns to shareholders compared to those that fail to achieve integration. That’s why it’s important to implement an integration plan and process as early as possible. The acquiring company should also:

  • Establish best practices to streamline new processes and workflows
  • Create a roadmap for cost and growth synergies
  • Define the target organization’s structure
  • Map system and process interdependencies
  • Identify critical employees for retention and create a team to stabilize the business and culture post-integration

5. Unexpected Problems Related to Costs, Communications, or Security

What it Means

The purpose of due diligence and a PMI plan is to control as much as possible. Inevitably, however, surprises will happen when integrating two companies. Consolidating teams takes time, and an organization may experience increased costs in the short term prior to getting the expected cost savings from the merger.


Legal fees, investment banking fees, advisor fees, and the like all add to the costs of an M&A deal and can overwhelm a buyer. The cost of due diligence and post-merger integration can also be substantial and affect the deal’s value creation capability.

Poor communication reduces transparency during a deal and causes integration problems later. It leads to cultural issues where teams work in silos, don’t share important information, and struggle to engage during the integration.

Finally, the large volumes of data collected during the mergers and acquisitions process are attractive to cyber attackers. Enterprise cybersecurity gaps increase the risk of data breaches and reduce the overall deal value for both the buyer and seller.

Risk Mitigation Strategies

Planning can help the buyer avoid many surprises around costs, communications, and security. Buyers should adopt a flat rate pricing model with due diligence specialists and use M&A project management platforms to avoid wasted time and redundant work.

An M&A communication plan can prevent confusion during a deal and cultural issues during integration. Technology can also assure robust communication during negotiations and PMI. Technology solutions minimize security-related issues. For example, virtual data rooms (VDR) provide a secure online repository to share and review confidential deal information.

Best Practices for Successfully Navigating Mergers and Acquisitions

Besides all the risk mitigation strategies discussed above, organizations should follow several best practices to navigate an M&A deal successfully. For instance, buyers should implement a change management program to address problems related to employees, cultural shifts, intellectual property, and new processes and systems.

They should also implement these strategies to assure that synergies provide the expected value:

  • Capture the synergies that are likely to yield the highest returns in the fastest possible time;
  • Align stakeholders on the overarching M&A goal, so everyone works towards it from the get-go;
  • Adopt agile practices to maintain focus on synergy capture.

Firms must also strengthen their security infrastructure with strong encryption and multi-factor authentication. Finally, they should analyze past market disruptions to glean insights that can be applied to mitigate future M&A challenges and integration risk.

ZenGRC is Designed for Risk Mitigation

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What is your biggest challenge currently?

  • Addressing enterprise risk management (ERM) across threats and vulnerabilities?
  • Evaluating potential risks across systems and business divisions?
  • Catching and remediating risks in real time?

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Driving Organizational Strategy
Adoption: ERM Checklist