A merger is a major decision for any business. Here’s what to keep in mind when contemplating joining your business with another.
Merging in its simplest form involves combining two companies into a single larger company with a transfer of ownership. Mergers occur for several reasons, including saving on production costs, especially in the merging of one-time competitors. In some cases, a merger means more capital and the ability to enter different markets or improve products with newly-acquired technical knowledge and resources that make it easier to compete. Other benefits of a merger include the generation of cost synergies (administration, production, etc.) as well as improved geographical or demographic coverage.
If you’re considering merging with another company, ask yourself why the two businesses would be a good fit. Of course, it’s important to consider their bottom line, but understanding the financial underpinnings of a potential partner is not as easy as you might think. It’s always advisable to seek the help of experienced attorneys and accountants. They can give you insight into the earning power of your potential merger partner and what the expected outlay would have to be to expand your operation.
In addition to financial considerations, examine each company’s target markets, corporate ethos, and management styles. How will this merger help you achieve your strategic vision? Is the other company headed by strong leadership? It’s also important to look at possible disadvantages to the merger. Would you lose any key employees or significant customers? Assessing these transition risks will help you determine future problems and whether they can be overcome.
It’s important to keep the costs of merging in mind. It’s easy to become enthusiastic about the potential cost savings from things like staff cuts, but that only comes with time. You might have to incur costs for things like severance payments and possible relocation. Be prepared for more up-front expenses before you actually start saving.
In transactional terms, a merger can be split into three stages. The first of these is the most complex: planning. Such a major decision for the company requires a sufficient amount of analysis, mapping out an action plan, and negotiation between the parties. It’s during this time that you may appoint advisors, and use techniques such as SWOT analysis, examining Strengths and Weaknesses, as well as identifying Opportunities or potential Threats that may come with merging with another company. Next is the resolution stage, when management gives its approval, followed by the shareholders. The final stage is implementation, which includes the enrolment of the merger deed in the official Company Register. It’s common for mergers to take about a year from the start of the transaction to be completed.
Even more common, however, is for a merger to fall through, so here are some things you can do to make sure your merger is set up for success:
- Hire a competent Merger & Acquisition lawyer, one who understands urgency and will get things done quickly. They must also be easy for the other side to deal with.
- Do your due diligence in getting to know the other business. Go in-depth with your research on the other company to reduce the chances of taking on any liability or encountering problems down the line. This includes the history of their business, property leases, debt details, etc.
- Be prepared for an initial lack of productivity and other workplace issues as things fall into place; the initial stages of a merger can take 3-9 months. Also, be prepared for some staff to leave, which often occurs after a merger.
- Make a conscious effort to maintain customer service, as greater priority and attention might be put on the merger instead of your existing client base.
- Keep an open line of communication with staff. It’s good to be transparent and to develop and encourage a consistent communication strategy. Reassure people about their roles and inform everyone of the overall plan. Keep the team updated and give ample opportunity for them to ask questions.
- Develop an exit strategy just in case things go south. It’s wise to have a plan in place, as the rate of failure for mergers is high. It’s common for partnering companies to have parallel operations running before they officially merge.
- Deal directly with possible inequalities early in negotiations. If the benefits seem one-sided, solve these issues before moving forward.
- Address any differences in workplace culture. Both companies may have to adjust if one has a more a strict management team and the other is used to a more flexible or laid-back work environment.
- Stay positive through the process. Your team and employees need to know you’re upbeat and confident about the merger.
Navigating a merger can be tough, but by identifying likely problem areas beforehand and creating a plan, you’ll be ready to deal with any issues that come your way.
Helen Jacob | Contributing Writer