8 Key Strategies for a Successful Business Merger
Acquiring another company and merging it with your business can be the quickest way to expand. But many acquisitions don’t pay off and it’s often management issues — not market conditions — that get in the way.
Here are eight key strategies that spell the difference between success and failure in mergers and acquisitions, no matter what the size of the companies involved:
Pre-Merger Strategies
1. Consider the fit. If two businesses don’t have compatible goals and ethics, merging them can be counter-productive. This includes financial structures that can be merged, as well as compatible customer bases and corporate cultures that aren’t radically different.
2. Listen to the seller. Money often isn’t the deal-breaker. If you can satisfy the seller’s non-financial concerns, you’ll have more negotiating power and the deal will likely go more smoothly.
3. Hit the books. Thorough due diligence is essential and requires a knowledgeable and relentless approach. Besides conducting a careful accounting analysis, check in with customers, chat with vendors, and talk to current and former employees. The more you know, the fewer surprises you’ll encounter.
4. Develop a game plan. Long before the purchase agreement is signed, there should be a detailed road map in place for joining the two operations.
5. Trust your gut. Even when an investigation makes the details look good, if the deal doesn’t smell right, don’t be reluctant to back out. Like gambling, mergers and acquisitions calls for good instincts on when to walk away.
Post-Merger Strategies
6. Pick a team. Before you announce the merger, know who’s going to be in charge at the new company. That person will need plenty of time to focus on the task at hand and won’t be able to just add these duties to current assignments. Make sure your chosen leader has plenty of time to devote to what can be an arduous task. Don’t automatically get rid of the acquired company’s old guard. Evidence shows that their experience provides stability and helps navigate the shoals.
7. Consider the culture. Little things like who gets invited to a company party can throw a merged operation into a tizzy. The more you know about the acquired company’s culture, the more likely you can head off potential explosions.
8. Talk, talk and talk some more. Controlling rumors among employees, shareholders and vendors is very important. Be open and honest in telling them what they need to know in order to feel secure enough to go about their business with your new expanded company.
Other Considerations
Before entering into negotiations, consult with your tax adviser about:
Assets versus stock. There’s a big difference between an asset deal and a stock deal. Your company could wind up with unknown, costly liabilities if the transaction isn’t structured properly.
Tax implications. Some expenses incurred in buying a business must be capitalized, while others can be amortized or currently deducted. Handling the sale in a tax-wise manner can save your business many dollars in the long run.
Needless to say, it’s critical to consult with your professional advisors before completing any plans for an acquisition. This includes your CPA, attorney, and perhaps a mergers and acquisitions specialist.
This article appeared in Walz Group’s June 12, 2023 issue of The Bottom Line e-newsletter, produced by Checkpoint Marketing. This content is for informational purposes only.
