Risk Trends 2025 and Beyond: Merger and Acquisition (M&A) Integration

Does your due diligence accurately assess and mitigate the risk that could destroy the value expected from M&A?

Considering acquiring or merging with a company? The potential for growth and new markets is exciting, but the integration process can be riddled with hidden risks that could derail even the most promising deals. Approaching 2025, effective M&A risk management is crucial as new areas of risk continue to emerge.

Consider the increased federal and provincial regulatory scrutiny of foreign investments, especially those involving sectors like minerals, infrastructure, manufacturing, personal data, and advanced technology. 

It may sound grim, but organizations need to consider any possible connection to forced child slavery, as per Canada’s Bill S-211, especially during M&A activity. This heightened scrutiny can lead to delays and increased compliance requirements. Organizations must fully understand these rules and regulations to avoid costly setbacks. Due diligence in M&A should include assessing the risk of acquiring a company involved in forced child slavery, ensuring that all potential liabilities are identified and addressed.

Activist investor campaigns are also on the rise in Canada, targeting M&A activities. These campaigns can be tricky to navigate, forcing businesses to address stakeholders' concerns and maybe even alter deal structures to gain approval. It's essential to have a clear strategy for managing these potential disruptions.

ESG factors are increasingly influencing M&A transactions. Organizations today must take ESG efforts seriously and demonstrate progress in achieving ESG performance targets and meeting the expectations of its stakeholders. Don’t acquire a company that derails your ability to achieve your ESG targets, such as a net zero target by a certain date. Having a clear plan for how the deal will fit into an ESG strategy is important for long-term success. 

Integrating tech and managing cultural clashes

When it comes to technology, ensure that the technology systems, especially related to artificial intelligence, cyber security, and data privacy, are secure and compatible with the existing infrastructure. Protecting sensitive information and maintaining smooth operations is paramount during the integration process.

Cross-border deals come with their own set of challenges. Make sure to conduct thorough legal checks to avoid expensive lawsuits or fines down the road. For example, buying a company with a history of bribing public officials could lead to being implicated in a foreign corrupt practices act (FCPA) violation. Understanding the legal landscape in different countries can prevent significant headaches down the road.

Beyond these broader concerns, specific integration risks can trip up M&A efforts. Cultural clashes between merging companies can lead to conflicts and disrupt the ability to achieve strategic targets. Integrating systems and processes can be time-consuming and expensive. And losing key employees from the acquired company due to uncertainty or dissatisfaction with the new management or culture can cost valuable talent and knowledge.

The world of M&A is more complex than ever. The risks of today go far beyond what companies faced in the past. Due diligence, risk assessment, clear communication, and careful planning are essential to successfully navigate these challenges. 

Why stop there? Here are other risks to consider:

• Regulatory and anti-trust issues
• Bribery and corruption risk
• Adverse customer, partner, and supplier reactions
• Reputation risk
• Legal, ethics, and compliance risks

Questions to consider: 

• Are you buying a corruption fine, cyber issue, or the wrong culture? 
• Do you have experts who can accurately assess the risks associated with the M&A deal — especially in foreign country operations?
• If you decide to pursue an acquisition or merger, do you have a plan to mitigate the risks associated with the company you will be acquiring?