Merging two businesses can be difficult as there are a lot of things to consider such as culture, economics and the law. It can seem like a daunting task, which so few attempt to undertake. However, a merger is not impossible. Today, I am going to explain to you the three things you absolutely MUST consider before beginning your merger.
What is a merger?
Let’s first start by defining what I mean by a ‘merger’. A merger is when two businesses join forces and begin to operate as a single entity. The desired outcome is usually increased efficiency, increased market share and acquiring new skills which will enable the businesses to provide new service offerings. When two organisations merge, they typically pool their resources—including employees, intellectual property, and assets—to create a bigger, more competitive business. Now, let’s discuss the three things all business owners should consider ahead of merging their businesses.
Culture
Culture can significantly affect the success or failure of the integration process, so you must consider it prior to selecting a business to merge with. By culture, I mean the shared values, beliefs, behaviours and practices that characterise your business and its mode of operation. Often, mergers fail because CEO’s haven’t adequately considered culture. If the cultures are highly dissimilar between the two businesses, it can cause tensions and miscommunications. Employees may experience low morale and decreased productivity if they feel as though their familiar ways of doing things is being disrupted. This leads to higher employee turnover which is something that no business wants!
Conversely, if the cultures of the two businesses are aligned, it can result in a seamless integration process, higher levels of employee engagement, and a more solidified, cohesive organisation. It is clear that culture is key. As a leader, you should ALWAYS be thinking about culture. However, during the uncertain times that come with a merger, it must be at the forefront of everything you do.
Economy
Another thing that is crucial to consider during a merger is the economy. This is because it can significantly affect the financial viability of the merged company. The value of assets, access to credit and consumer demand can all be impacted by economic factors including interest rates, inflation and market trends. A healthy economy might make it easier for an integrated firm to obtain funding, develop its clientele and enter new industries. Whereas a weak economy can make all of these things near on impossible!
Therefore, it is imperative that you carefully research the economic environment at the time of the merger and ascertain how it may affect the success and financial viability of the merged organisation. This involves studying market trends, evaluating financing options, and foreseeing future risks and difficulties.
Legal and Regulatory Compliance
Being compliant with applicable laws and regulations is crucial during a merger. In order to ensure that the merger doesn’t break antitrust rules or harm competition, prior to the merger taking place you may need permission from regulatory bodies.
Antitrust laws, for instance, are intended to encourage open competition in the market and prevent businesses from acquiring a dominant market position that would limit the competition. This might seem ludicrous to those staunch capitalists amongst you. However, these laws are in place to ensure that business remains fair. Thus, it is crucial that your merger doesn’t give your business an overzealous competitive advantage in the marketplace. Before finalising the merger you may need to acquire approval from antitrust regulators!
It is also important you consider tax laws ahead of your merger, as fines, penalties and other legal percussions may be incurred for failing to adhere to tax requirements.
If you’re interested in merging your business and need some help – get in touch with us!
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