Tips for a smart, smooth merge.
If you're a business owner, the classic exit strategy for realizing the hard-won value of your company is to put it up for sale. But what if you're not ready to bow out entirely? Or, say you found the ideal buyer, except that the potential new owner lacks the cash to purchase your business outright? The answer may be a merger, in which the parties involved exchange ownership interest rather than cash with the assumption that the owners or management teams remain invested in the merged business's future.
Mergers, however, are notoriously difficult. An oft-cited 1999 study by KPMG found that 83% of mergers failed to increase shareholder value. With that caveat in mind, here are tips for making the transition as smooth as possible:
Set Clear Objectives
What are you looking to achieve by merging with another company? Product diversification? Expanded territory? New customers? Reduced overhead? While you may have multiple ambitions for the combined company, experts suggest homing in on the most important objectives and setting benchmarks against which you can measure results.
Weak Plus Weak Rarely Equals Strong
Opinions differ about the logic of merging two struggling companies in an attempt to create a stronger entity. Some experts consider it a recipe for disaster, while others concede that if the strengths of one firm overcome the weaknesses of the other, things could work out. Remember, though, that merging can be an expensive process in its own right, and if neither company has access to sufficient financial resources, the combined enterprise is unlikely to succeed.
Involve Your Banker
Your banker and financial advisors are likely to have experience to share from helping other companies merge, so engage them. And, if your ultimate goal is to exit the business, your financial advisors can help you make sure a merger is structured so you can eventually move on as expected.
Do Your Homework
There's more to due diligence than just the numbers (although those are extremely important). Spend some time learning about how your potential partner company operates, how it treats customers and employees, and who performs what tasks. The more you know up front about operations, the fewer surprises you?ll have when it comes to integrating.
Mergers can be murder on employee morale, especially if workers are kept in the dark, while vendors and customers may be equally anxious. Be careful to present your case for a merger to stakeholders inside and outside your operation, and be up front about any changes it will entail.
Take Your Time
Finally, experts maintain it can take up to three years to see positive results from a merger, and that the best mergers proceed with extreme caution so as not to disrupt service to customers. Begin with minor integrations, and let them smooth themselves out before proceeding.
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