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The phone rings.

It’s a client with exciting news: They’re about to do an acquisition. This deal is going to boost revenue, cut costs through synergy and improve profitability. It will be expensive, the client acknowledges, but worth the price.

Maybe it all does go according to plan. But chances are much greater this deal is going to fail, meaning it will fall short of expectations and what’s been promised to investors, partners and lenders.

In the deal-making space I know best—small- to mid-size manufacturing and service companies—many acquisitions disappoint or implode. Harvard Business Reviewreported that in 2011, the rate of acquisitions imploding was somewhere between 70% and 90%. This is a shockingly bad result, yet not an anomaly. Plenty of academic research confirms that many mergers and acquisitions destroy shareholder value.

Things go sideways because in the heat of the moment, CEOs and executive teams get hyped up on the thrill and hyper-focused on what spreadsheets hint is possible. They lose sight of a crucial aspect of the transaction, which is the customer base they are acquiring. Those customers may not be happy, and many may not stick around.

Despite clear risks, mergers and acquisitions (M&A) never seem to go out of fashion. Deal-making is elemental to business: strategic, bold, a match of wits, an outcome measured in dollar signs, market share and egos. There’s no quicker way to vanquish a competitor. No wonder M&A gets plenty of headlines, and no wonder CEOs blunder into acquisitions they should avoid.

Plenty of times we’ve warned clients they were about to take too big a risk on an acquisition, and sometimes they’ve listened. Often they didn’t—but that usually happens once. They decided their assessment of financial statements plus gut instinct told them all they needed to know.

A year or two later, chagrined by the failure but willing to try it again, they become more receptive to advice. Or at least they are compelled by their lenders to accept our due diligence report. This scenario is more common in private equity circles these days because deal prices have skyrocketed, often necessitating more debt financing. Lenders want assurances they’ll get their money back, so they require more vetting.

The weak point in these transactions is the acquirer, without knowing the customer base, is about to change the way the business operates. Introducing synergies means a new, leaner management team, new systems, and maybe higher pricing. The account manager who’s been around for 20 years is gone. The one-hour response time suddenly becomes two days. All this diminishes the stickiness of relationships. It’s entirely possible the customers already were unhappy. Now they’re ready to bolt.

The M&A work we do involves customer research and interviews, so we hear what the deal-makers don’t. In one example, a client purchasing a firm in the office technology sector justified the purchase with plans to roll the acquired firm into its larger business. When we looked into it, we discovered the target company was in messy shape, with high employee turnover and fractured customer relationships. Using a customer satisfaction metric known as net promoter score, this company delivered the worst result we’d ever seen.

We recommended against the investment, but—yes, you guessed it—the acquirer went ahead anyway, and subsequently lost 40% of the customer base it acquired. The buyers couldn’t realize the anticipated cost savings, which meant they needed to pump in more money to keep the business afloat. It’s several years later now, and they want to acquire another firm. Maybe this time they’ll listen.

Good things happen when acquisition-minded CEOs and boards take in the full picture. Sometimes they gain the strength to walk away from a bad deal. In 2021, about 15% of the potential deals we looked at were terminated, which is a high percentage given that many companies tend to think that due diligence is meant to validate, rather than truly vet, a purchase. Another outcome of proper due diligence is, when appropriate, the deal price gets negotiated downward.

A third positive scenario also is possible. The deal closes as structured and both sides express satisfaction. I’ve seen it happen, and sometimes it’s justified.

In my experience, a successful buyer knows three things.

First, they acknowledge that around 20% of a target’s customers and services have value creation potential. Eighty percent of what a target does is a margin-compressing distraction. Post-close, a successful buyer is laser-focused on retaining and growing the “whales” at the deliberate expense of underserving the “minnows.”

Successful buyers also understand that companies must earn the right to grow. Before introducing new products or services, they first become the market share leader in their core business. Before launching a massive customer acquisition campaign, they first ensure they are providing the best possible experience to the current customer base.

Finally, successful buyers know that not all revenue is created equally. Companies can add $1 million in revenue with 1,000 customers or with one customer, depending on the needs of the customers. The former is likely unprofitable since the cost to service an extra thousand customers outweighs the incremental gross profit. The latter is likely highly profitable especially if minimal (if any) overhead is required to service that one account.

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The article "Your M&A Transaction Might Fail, Here's Why." was originally published in Forbes.