What are some common reasons for M&A failures

The parties involved in a transaction may adopt different valuation methods, or negotiations may break down due to information asymmetry, negotiation tactics, or emotional premiums.

Due diligence is a critical step in the M&A process. Many companies fail to conduct thorough due diligence before an acquisition, particularly regarding the target company's financial status, legal risks, and market position. Some companies focus only on surface-level data or fail to delve deeply enough, overlooking hidden liabilities such as undisclosed litigation, environmental issues, or employee disputes. These "time bombs" can detonate after the transaction is completed, leading to significant financial losses.

In China, the policy and regulatory environment has a profound impact on equity M&A. Rapid policy changes, strict industry access restrictions, and complex antitrust reviews can all cause M&A plans to be shelved midway.

Language barriers are just the surface of cultural differences; deeper issues lie in divergent ways of thinking and decision-making logic. Foreign companies may believe they have reached a consensus with Chinese counterparts, only to find that their understanding of the same issue is entirely different. These cultural differences can lead to conflicts during the integration process, potentially causing the deal to fail.

Legal and compliance risks are issues that companies must take seriously during equity M&A and restructuring. Companies must ensure that all operations comply with Chinese laws and regulations to avoid legal disputes, reputational damage, and financial losses. Additionally, some companies, in their eagerness to close a deal or due to excessive trust in the other party, may neglect or waive protections for their own interests during contract negotiations, thereby increasing the risk of breaches or disputes.

Significant differences in corporate values, management styles, and employee behavior patterns between two companies can lead to frequent conflicts during integration. Key technical personnel or management teams may leave due to cultural clashes or uncertainty about the future, destabilizing the team and weakening the company's core competitiveness. Poor handling of employee placement issues post-merger can also lead to legal disputes, damaging the company's reputation and financial interests.

China's foreign exchange control policies make capital flow difficult. Some companies fail to plan their capital flow paths in advance, leading to situations where "money cannot come in or go out." Restricted or costly financing channels can also cause the transaction's funding chain to break, resulting in deal failure.

Equity M&A is a highly challenging business activity involving strategic, financial, legal, cultural, and managerial factors. Companies must fully understand local policies and regulations, strengthen due diligence, focus on cultural integration, develop scientifically sound integration plans, and approach valuation and financing rationally. Only then can they navigate the complex and ever-changing business environment, avoid "pitfalls," achieve successful integration, and enhance their core competitiveness and market value.