Whether you want to expand your business or leverage your expertise, you must know a few things before a merger. Along with financial due diligence, consider factors like- company culture, business motives, and existing revenue structures. It would help you identify the potential of merging with the company.
The blog lists some ways to ensure a successful merger.
When does a merger happen?
A merger occurs when a company benefits from aligning its operations with another venture in the same industry. It increases the overall revenue and the company’s shareholding value. Under this, both companies convert their respective stocks to the new company. Likewise, one of the companies agrees to buy another company’s stocks from the shareholders in swapping for its own regular stock. Moreover, in some cases, the company used cash to facilitate the equity transition. The shareholder of the company shares the upper hand in deciding whether or not to merge with the company.
Okay, what’s the benefit of merging the company?
What are some potential benefits of a merger?
After the merger, the two companies act as a single entity. It means the decisions impact the growth of the new company. Here are some benefits of the merger:
- Reach to capital and resources
- Access to new client base without efforts
- Reduces operating costs
- Expansion in new markets
- Acquisition of best talents
These are some critical benefits of a merger. However, one must rule out the possibility of ensuring a successful one. As per recent statistics, “Around 90% of mergers fail.” It is thus important to analyse the discrepancies, eliminate them and re-create a new bond over new values. These values must align with both company goals.
The fear of being one of those 90% hits hard during a merger. Thus, many company owners indecisive about the action think:
“How to ensure the best merger?”
Customer wellness and non-compromisation with quality is the key to rule mergers. Read ahead to know in detail.
5 Potential strategies to pull off a merger
The merger seems daunting, from ensuring the best amalgamation of the company cultures to sorting out the leadership structures. However, to begin the deal on a good note, these strategies may help you:
1) Do background checks of potential partners
It is one of the most important parts of a merger. You must know the company inside-out before collaborating with them for further business decisions. Do not jump on to the decisions without vetting the companies. Precisely, conduct detailed background checks, and contact the references, clients and associates to know about the company in detail.
Apart from this, never ignore employees’ opinions. You may get some useful insights from these things. It will help you decide whether you should go ahead with the move.
2) Run an interview with the company’s customers
Nobody knows a company’s policies, behaviour, and strategies better than a customer. Moreover, customers are the end product you would finally sell the product to. Interviewing them about the company’s policies and seeking suggestions might help you. However, most companies keep mergers a secret until it’s done. You can still check out some regular customers to achieve your goal.
If you do not get any customers to interact with, read the reviews on authentic sites. Analyse what people say about the company online. Check:
- Whether they praise the products?
- Is there any problem with the product delivery?
- What’s the primary pain point that customers face with the company?
Their happiness and displeasure reveal the signs of how the company operates and its leadership.
3) Analyse financial reports of the company
Looking at the prospective partner’s financial books will help you know the accounts and transparency. Analyse business accounts for at least 5-7 years of the business operations. Identify the discrepancies in the potential partner’s capabilities to hold straight accounts. Apart from that, check for missing details, extended numbers or inconsistencies before the merger.
Get a financial manager on the board for a detailed analysis. It would help you know the debt the company shares and the assets it holds. It may not be terribly good if the debt exceeds the asset count. Be mindful of the fact that, like you, the other company would also like to view your accounts before the merger.
Thus, revise your financials and eliminate debts and other issues with the help of an expert financial advisor. Keeping your books clean first would grant you more authority to review others.
4) Additions it brings to the table
It is another aspect you must not overlook. If the company does not add value to the existing frame, the merger ends. Thus, before shaking hands over the new beginning, analyse a few aspects:
- Skills, competencies and resources it shares
- Size of the company and speedy growth strategies
- Markets it shares access to, whether it is future-oriented or not
- A merger can quickly add to the market share- how much assess its share?
- Would it impact the customer’s experience or enhance it?
Getting answers to these queries will assist you choose the best for your company and business goals.
5) Due diligence of legal disputes
Disputes in business are not a rare thing to encounter. If you sense some foul play during the merger, it gets problematic. Do not ignore it. Instead, seek help to conduct the due diligence and avoid such hassles later. If the company still sticks by the game, move out of the merger. It may not help you in the business venture anyway.
You must know the previous legal accusations against the company. Take help from your legal advisor to explore the matter in detail. Precisely, you must leverage the opportunity to access the disputes at the crucial merger stage. After that, you may miss the opportunity.
However, some start-ups lack legal advisors, especially when they decide on a merger. This is primarily the case with start-ups with limited budgets. Check other resources if you need expert advice but lack sufficient capital now. For example, with financial institutions, you can borrow 3000 pounds to consult an advisor quickly. It would help you proceed further without delay.
Bottom line
Conducting due diligence and analysing the pros and cons is critical before partnering with a company. Mergers and Acquisitions are important business decisions that require detailed business analysis. It includes analysing other business finances, legal allegations, revenue numbers and market reputation. It would help you ensure a successful merger.
