In my experience, this is right thinking. Small failures allow us to fight on – big failures can be deadly.
Last year we worked with a public company that had completed a badly chosen acquisition ten years prior and was just getting out of the woods from those financial losses and bad memories.
Cat never sitting on a hot stove again analogy still in force (this cat would never sit on a cold stove again either).
An acquisition cost benefit analysis that sets as a basement not failing as the worst case scenario in its risk tolerance strategy may spend resources by walking away from more deals than others, but it greatly reduces the odds of the giant and sustained losses incurred by papering over real issues.
Yes, not making it to closing is terribly frustrating & can be expensive, but it is a rounding error compared to papering over those issues that will cost your firm years of profit, pain, and the open wound of a bad decision stuck to.
Statistically, about half of all deals don’t get to closing and the big studies (Deloitte, Harvard, Wharton) prove repeatedly that most completed deals do not add value (and about half of them actually destroy value).
There are many moving parts to an acquisition and the pressure builds to get that deal done (we are in deep here, “let’s get it done”).
Make sure your team know how those parts work and that they have the support to walk away from deals with parts that are not fitting together properly.
How else do smart companies guard against risk?
Share a story or a secret for discovering acquisition risk, Mike@packardacquisitions.com