By Joanne Baginski and Dan Foote

Depending on the source, acquisition failure rates vary from 50% to 85%, and McKinsey has found that as much as 61% of recent M&A deals failed to earn cost of capital or better on invested funds. Booz Allen & Hamilton and Mercer Management have conducted studies that have found that 50% of merged companies total shareholder return (TSR) underperformed relative to industry peers 2 years after the deal closed, and 52% of merged companies had a TSR that was lower than industry average 3 years after deal completion.

If acquisition and above-average, post-deal performance have no better chance of success than the flip of a coin, is there anything buyers can do to improve their odds? The following are six disciplines the most successful buyers are following in their acquisition practices.

Maintain price control.

When buyers become captivated by a product or service, business strategy, or management team, they can fall in love with a target seller and lose the ability to walk away. This results in an inequitable transaction, where the seller has the power to increase the price, and the buyer, determined to own the target in question ends up paying far more than it is worth. It is important when pursuing a seller to be disciplined about the price. Identify a price you are willing to pay, and stick with it. This can become particularly difficult when a seller reports good news, like a major new customer or a significant new distribution channel. In this situation buyers may end up focusing too much on the potential development and get carried away. Buyers should always model out developments that might change a deal value with operational and financial facts. A good due-diligence project will explore and forecast the costs, including those of potential sales growth. You may want to ask yourself whether the deal is priced in such a way that you can still afford to spend additional resources on the integration and make the targeted return on investment.

Approach with a problem-solving attitude.

There are two types of buyers. The first kind blows minor issues up, focusing on them, challenging them, and may even call off a deal. The other kind of buyer will look at seller developments strategically and determine how they might impact the transaction in the short term and the consolidated business in the long term. These types of buyers may even find some benefit to small issues. You should remember that processes can be fixed if the foundation of a business is still strong.

A positive, problem-solving attitude is not only important for finding unique and strategic advantages when issues come up. It is also an important practice in regards to the management team and employees of the eventual merged company. According to a recent MergerMarket study, integrating people and culture is seen as the second most important factor in marking an M&A deal a success. If buyers are not seen as collaborative and able to overcome obstacles, key individuals often depart following the acquisition. The loss of seller management can significantly decrease the value the acquisition should have delivered. The Corporate Leadership Council has found that up to 85% of M&A failures are a result of problems in the integration of employees and the management of cultural issues in the deal.

Identify difficult sellers and move on.

A problem-solving attitude is important, but some challenges with sellers simply cannot be overcome. When that is the case, the best strategic buyers move on quickly you are looking to grow your business as a result of an acquisition, not inherit someone elses headaches. One of the most frequent issues identified in the seller due diligence process is inexperienced or incapable accounting and financial expertise. In some cases this challenge can be overcome, either through the addition of new staff, the outsourcing of the function, or the reassignment of these responsibilities to someone within the buyers organization. However, pre-merger financial errors can result in much larger and much more expensive issues down the road. Through interactions that take place as part of the transaction process, due diligence-providers have a significant and unique view into seller company financial aptitude. Gut instinct about interactions and capabilities with the sellers financial executives and employees often proves accurate to bookkeeping errors, or worse, fraudulent activity.

Mirroring the importance of a problem-solving attitude as the seller, buyers have an equal responsibility for merger culture and attitude. Following a deficit in financial expertise, poor seller culture can be one of the biggest hurdles to a deal. The reasons this this issue vary and my include recalcitrance to part with the business, over-estimation of the businesses value, or simply poor management abilities that result in a negative workplace. The MergerMarket study also found that 45% of respondents that had been involved in a deal that for the cultural integration wrong said that it had a negative impact on share price. Regardless of the reason, smart buyers can recognize culture issues in potential sellers and move on quickly.

Take the time to complete the process -all of the process.

Deadlines are good, and time can kill a deal. However, buyers still must conduct a thorough due diligence. Often times when important information was not identified, the cause was a rushed transaction process. In an effort to speed deals along, some due diligence providers utilize inexperienced individuals to conduct it. These people may not have been operators and may not understand what to look for, so critical issues within business operations can be missed. This can be a challenging practice to stick to, as a LOI deadline approaches. Buyers should be more concerned with making sure everything is right than getting the deal closed. If a seller is over-focused on speeding through the deal, you may want to interpret that as a warning sign. You dont want to close a deal too fast and then find out something important.

Pay for some potential efficiency.

Strategic buyers know that value in the seller does not end at its current annual revenue. By leveraging efficiencies between buyer and seller in sales functions, distribution channels, and cost-reduction, there may be a much larger potential to gain. A deal should not be called-off simply because a sophisticated seller recognizes this and may want to increase the purchase price. As sellers learn more about you as a buyer, both parties often feel the need to reassess the transaction price. Good buyers are frequently willing to make a good faith investment in a seller than can offer strategic efficiencies. In addition, this is another important way to show the target that you view them as a true business partner. Good due diligence identifies and quantifies synergies and should identify key integration actions, helping the acquirer in negotiations by providing clear expectations with solid reasoning.

Dont skip due diligence steps!

Financial, operational, environmental, HR, legal, tax, and others, there are many important parts to comprehensive due diligence. No two deals are exactly the same, and therefore no two due diligence processes should be the same. It is important to have providers who have the experience and expertise to provide a high quality report. One of the areas most often skipped is strategic tax due diligence. This is an unfortunate oversight, considering the potentially significant impact it can have on the post-merger company. Without tax-focused due diligence, buyers may not understand many of the IRS compliance obligations of a seller. For example, there may be substantial state and local tax (SALT) obligations or even international tax requirements for sellers who have investors, customers, or operations in other places.

By following the six disciplines above, strategic buyers can avoid some of the common pitfalls that cause deals to fail. These strategies can also help increase the chances of a higher post-deal PSR. One of the most important best practices is to use a highly experienced and insightful due diligence partner. For more information, please click here .

Author Joanne Baginski, CPA, is a Business Consulting partner at EKS&H. Her expertise includes due diligence, capital financing, and financial planning and analysis.

Author Dan Foote, CPA, is a Transaction Services senior manager at EKS&H. His expertise includes due diligence, financial planning and analysis, and valuation