It's no secret that not every merger or acquisition is successful. When you consider the inherent complexity of combining two organizations, business styles and cultures, it's no wonder that many transactions get derailed. While the possibilities of failure are limitless, fortunately there are also a few keys to success. Whether you are buying or selling, understanding what contributes to a successful transaction may help you avoid the many potential pitfalls and maximize the return on your investment.

Keep it Short
"One of the most common mistakes in a transaction is letting the process drag on for too long," said Jeff Golman, vice chairman, Investment Banking. That's because, despite the best of intentions to keep a transaction quiet, eventually word will get out. These rumors can foster uncertainty among customers and vendors that can erode the value of the company. Concerned clients may choose not to renew contracts as they expire. Vendors who have lost faith in a company's ability to pay may change favorable supply arrangements. The longer the process lasts, the greater the potential damage.

Although you can't avoid the inevitable rumors, you can minimize the effects. By limiting the duration of a transaction from start to finish, you increase the likelihood of maintaining your important relationships – and the viability and value of the company – during the process.

Get Management Buy-In
Perhaps even more than vendors and clients, employees represent a significant portion of the value of a company. But if senior executives or managers fear for their professional futures after a transaction, they may begin looking for alternative employment. Stay bonuses and other so-called golden parachutes can serve the critical role of aligning the interests of key employees with the owners of the company. They act as a sort of insurance policy, providing key executives with a monetary reward at the time of a sale or guaranteed compensation for a set amount of time, regardless of whether the new owner decides to cut staff. These arrangements give the seller confidence that key executives are committed to the transaction and not looking for or worrying about employment.

Watch Your Timing
Even if two companies look like a great fit, the choice of when to initiate the deal can be a factor in its ultimate success. Uncertainty – whether in the form of an upcoming contract renewal, upheaval in the industry or volatility in the market – may cause a buyer to lower the purchase price in order to shift the risk of a potentially negative outcome. "It''s generally better to wait until any significant outstanding issues are resolved or brought out into the open before initiating the process," said Golman.

However, as a buyer you may not always have the luxury of waiting. "If your next largest competitor is about to make a deal that would significantly reduce your market share, you may need to act quickly," explained Golman. For both buyers and sellers, being sensitive to market conditions can help you make the most informed decision about if – and when – to initiate a transaction.

Address Molehills Before They Become Mountains
The complex nature of M&A transactions generally means that some problems are inevitable. But that doesn't mean you should wait for them to occur. "Instead of reacting to problems as they come up, you need to anticipate and proactively address potential issues that might delay – or stop – the deal from going through," said Golman. "Consider a seller whose property sits on a polluted site. In order to allay potential buyer concerns, you may need to hire an environmental consultant to conduct studies, analyze the exposure and determine whether an environmental insurance policy may be needed. Or, if the seller's finances are in question, hiring an accounting firm to audit the company's financial statement can go a long way toward diffusing an issue that otherwise has the potential to be a deal-breaker."

Get Professional Help
With intimate knowledge of the merger and acquisition process, an investment banking professional can provide you with the information you need to make sound buying and selling decisions. Professionals continuously monitor the market and specific sectors, staying abreast of the factors – such as consolidation trends and values – that provide clues about when to start the process and how to position your business to maximize shareholder return. "By working with a professional, you're better positioned to avoid the mistakes that can derail a transaction or result in a lower valuation of the business," said Golman.

Golman also emphasized the importance of choosing a firm that is dedicated to working with you to design, orchestrate and implement an effective business transaction. "By taking the time to understand our clients' greater goals, we offer value beyond a single transaction," added Golman. "These efforts can include identifying additional acquisition targets that meet a buyer's business needs or helping market other parts of a seller's company. In addition, by drawing on professionals in other disciplines, we often help owners invest the proceeds of a sale in a way that is consistent with their personal financial objectives."

This article originally appeared in the 2006, 3rd quarter edition of the Mesirow Financial Quarterly. Click here to access the current and all past issues of the Quarterly.