For any company considering merging with another, there are several issues to consider beyond just the business terms of the merger.
Some of the biggest business successes of all time have stemmed from a merger, and on paper, this makes sense. The resources, reach, and existing customer bases of the two companies create a combination that can be difficult to compete against. However, at the same time, keep in mind that a merger isn't automatically a guarantee to success. Properly combining two companies requires a deft hand and a strong plan.
Merger Advisors
One of the key pieces that you need to have during a merger is a
strong team. This includes a lot of different areas, from having
legal professionals to financial experts to sales and marketing
team members. However, having a strong team for a merger is more
than just putting together the best people you can find.
These people also need to be willing to work together. Often, two
companies merging means that staff on both sides will need to adapt
their practices. The top team members that you want on your merger
team have to be malleable in that regard.
Transaction Terms
Another thing that you want to concretely iron out while working on
a merger is the division of the ownership of the company and
responsibility for different business functions. One of the most
common reasons that companies opt to merge is that they see a
bigger profit together than the total of their individual efforts,
a 1+1=3 situation. However, this same benefit can make it difficult
to create a profit split between the two entities. In a similar
fashion, there may be duplicative roles at each organization that
need to be merged.
This split may also need to adapt. For example, if one of the
companies comes into the merger in a position of weakness but grows
over time and wants to renegotiate.
Where People Go Wrong During a Merger
Most companies are concerned about putting on a good public face,
just as they should, so you rarely get to hear about the other side
of mergers, like the mistakes or issues that arise. Here are a few
examples of where people make poor decisions during mergers.
One legal mistake that people make is failing to set up a proper
NDA (non-disclosure agreement). Beyond that, it's essential to
keep proprietary information from leaking out. If a merger is going
on and the bidders are strategic competitors, when competitively
sensitive information is provided to the other side can be
important. A similar area of concern, but a more esoteric one, is
treating the two company cultures as something to be ignored or
steamrolled. Going into a merger with the attitude of "we
don't do things that way" may seem like a way to create a
uniform mentality on paper, but may also generate friction at all
levels of the company. Having a plan on how the company's
culture will evolve and integrate the target is critical to
ensuring success of the merger.
The VLP Speaks blog is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog site, you understand and acknowledge that no attorney-client relationship is formed between you and VLP Law Group LLP, nor should any such relationship be implied. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.
Originally published 22 June 2019.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.