E-commerce mergers and acquisitions (“M&A”) are often successful and achieve the goals for which they were designed. But we have all heard the horror stories of M&A “gone wrong.” When everything is eventually parsed and examined, there are often specific reasons why the M&A went wrong. In this article, the e-commerce M&A attorneys at Revision Legal discuss a few legal mistakes to avoid when consummating an M&A.
Not enough due diligence – Due diligence is a careful examination of the target business by the acquiring business after the Purchase Agreement is signed, but before the transaction is finalized — that is, before the sales price is paid. Done right, due diligence thoroughly evaluates the target’s finances, structure, employees, legal liability issues, and other potential risks. Some of these are known by the parties. But, good due diligence uncovered legal and practical issues that the parties did not know when they were negotiating. Sometimes these are “too large” and the deal falls through. Other times, a price adjustment is agreed to, and in other cases, the parties go forward anyway. Some businesses try to save money and skimp on due diligence. It is a bad idea
Not enough focus on key employees – Another mistake to avoid is not paying enough attention to key employees. Understand that a “key” employee may or may not be the owner of the ecommerce business — the one who is selling. Part of due diligence involves making sure that the “key” employees of the target business are known and that they are queried as to their plans post-M&A.
As an example, suppose the target company does design of some sort and it fits very well with the design focus of the acquiring company. A granular look at the sales for the target ecommerce business shows the designs of a certain employee amount to about 50% of the target’s sales volume. A “key” employee has now been identified. Work is now needed. Can we “lock down” the employee or are they headed for the door?
Losing focus on the customer – Losing focus on the customer is a particular danger of e-commerce business since the sales are online and can be fleeting. It is important to look at responses, comments, complaints, and other information to determine what it IS about the target business that brings in the customers. We gave an example above of the designs of a particular employee. But there could be other things like methods of shipping, discounts, ease of navigating the website, etc. After consummation, will those things remain? If not, then customers may just “ghost” away to other e-commerce businesses.
Unrealistic expectations – Finally, some ecommerce M&As fail because the parties have unrealistic expectations. No M&A ever achieves 100% of what is expected and few achieve success immediately. It takes time to build a business and it takes time to integrate two existing companies. Employees need training and need to get the work done. It may take months or even upwards of a year to get the full benefits of an ecommerce M&A.
Contact the Ecommerce Attorneys at Revision Legal
For more information, contact the experienced e-commerce lawyers at Revision Legal. You can contact us through the form on this page or call (855) 473-8474.
