The buyer would eliminate any excess corporate functions, such as a doubling of accountants, marketing teams, managers or IT. Absorb the company, if the cons outweigh keeping that company functional as its own brand. It then becomes easier to grow that business as a part of the surviving company. In some mergers, both entities will merge, but both brands and locations survive this transition.
If one company has a strong following, why drastically change what works and risk alienating those customers? That does not mean that a merger is out of the question. Also, the acquisition of a smaller company by a larger corporation does not mean the smaller brand will dissolve.
The corporations can marry corporate functions while maintaining separate brand names. Furthermore, each name may continue to perform some administrative, marketing and HR functions on their own. You would focus on a long-term integration that preserves the best of both brands. Other cases may necessitate that neither company survives. Both companies agree that merging their assets under a fresh entity and new name is for the best.
Usually, both companies have their own set of cons that are not beneficial to the continuance of either company. The two struggling companies have a better chance of surviving as a new entity. If these companies continue to disagree, no one wins. No one thrives. Change brings opportunity for growth and learning, but it can also be terrifying, especially for employees of an acquired business. Before executing the merger, the structure of each company needs to be carefully examined to determine the best procedure for merging with or acquiring the business.
So, for example, a corporation seeking to merge with an unincorporated sole proprietorship may prefer to structure the merger as an acquisition by the former of assets owned by the latter. On the other hand, two corporations seeking to merge may prefer to create a new corporation in a consolidation deal, in which the new entity acquires all of the shares of the two pre-existing companies.
Be sure to take into account the many perspectives when crafting the legal structure of the merger. Of course, the interests of all the stakeholders of the merging companies needs to be considered, lest the proposed merger be scuttled by an unhappy owner or shareholder.
Tax considerations often take center stage as well as inefficient deal structuring, both of which can have negative impacts on both companies.
Once the structural details of the current organizations and the proposed merged organization are sorted out, the leadership structure of the future company needs to be established. This can be a fraught subject as, frequently, the leaders of both companies wish to take charge of the new company. Unless the leadership of both firms is already aligned with what the new company will look like, one may need to have conversations regarding who will take the reins of the merged firm.
In addition to determining who will lead the new company, the leadership structure will need to be determined. If the merged entity is a corporation, a board of directors will need to be appointed and officers elected. Companies, like families, have internal dynamics that can lend themselves well to a merger or make one extraordinarily difficult. Before taking on a new firm, spend time at the offices of the company talking to the founder and any employees he or she might have.
Gauge how open to change the members of the merging company are, how willing they are to work under new leadership, and how easy they are to work with in general. The branding of the new company takes center stage after the merger.
Pay close attention to how one wants to market the new company, post-merger. Similar to the leadership question, the method of branding the new company can bring out a lot of emotions in the leaders and employees of the former companies. It goes without saying that a careful analysis of the financials of the company being merged with another must be undertaken well in advance of any action.
The financial strength of a merger target can make or break merger plans, as large amounts of debt or liabilities can make a successful merger all but impossible.
While possible to carry out a financial due diligence oneself, it is unlikely that a small business owner has the accounting proficiency necessary to spot every issue that may arise. A tax accountant can also be extremely useful when conducting a financial analysis of a merger target.
He or she can identify any significant accrued tax losses or gains which one could exploit or suffer from, respectively. In addition to examining the balance sheet of a merger target, take a careful look at their recent and not-so-recent income statements and statements of cash flows.
These statements can reveal whether the company is operating under significant operating costs or has an unusually high weighted average cost of capital. Before proceeding too far with a merger, perform due diligence on the potential merger.
The reason for this is obvious. For example, if you are combining two widget companies and neither is using percent of its manufacturing capacity, you might be able to shut down one facility and produce all of the widgets at one facility. You now reduce the cost to produce, store and ship each widget, increasing your profit margins per unit.
You might find similar economies of scale with your information technology, marketing and purchasing functions. When you merge two companies, you save money by eliminating redundant functions such as human resources, accounting, IT, marketing, sales and office administration.
This reduces costs and provides more efficiency. It means having to terminate workers and create a new corporate culture that serves the remaining employees, or it can mean having the employees absorbed from the shuttered business adapt to the policies and procedures of the surviving company.
You also can reduce the cost of redundant assets such as real estate, office space, equipment, supplies, computers and software. Consolidating two businesses gives you three options to maximize brand benefit. Or you can consolidate functions to eliminate redundancies and take advantage of economies of scale while keeping both brands operating.
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