Mergers and acquisitions are monumental undertakings the businesses, executives, board members, in-house counsels, and employees involved. When your company has reached the point of considering a merger with another, there is a significant task before you. There are many factors that need to be considered about the logistics of pre-merger, during the merger, and post-merger.
While this is nowhere near an exhaustive list of the questions and considerations you will need to make as you approach a merger, they are some essential ones that you should consider. Let’s start with questions that focus on pre-merger activities.
Does this merger have a strategic purpose?
Mergers are never done for the merger’s sake. Mergers are, and always should be, approached with deep consideration of the strategic purpose for all parties involved. Examples of such a goal would be wanting to grow your company by expanding the global footprint of your business. This expansion can be more advantageous with the acquisition of an established market share in that economy. Two companies wanting to capitalize off of each other’s regional strengths and resources can use that as a strategic purpose behind a merger.
Will there be any overlapping?
Overlapping can occur with customers, vendors, or suppliers which may have a cannibalistic result; however, the overlapping or post-close merging of regular business services allows consolidation of buying power. This can create synergies that reduce the cost of anything from payroll and toilet paper, to insurance and technology. Even if there is a large assumption among the leadership that the respective companies won’t compete, it is still recommended to engage a neutral third-party in the negotiation to compare customer lists, names, and accounts receivable. Some large regular consumers are often considered a given but further consolidation of such large purchases may be enhancing rebates due to increased purchases. Overlapping should not be confused with complimentary opportunities or that the combined business won’t have new cross-selling opportunities. Along with the subject of overlapping, combining the names of both businesses may avoid customer confusion or fallout. Sticking with the acquirer’s name only may create a loss of customer loyalty and a rise in assumptions, especially that of the business operation being drastically different.
How will our cultures align?
I have discussed this before in a previous post about maintaining a healthy work culture during your merger. To reiterate, clashing work cultures and lax attention in this area can essentially make or break your merger attempts. Asking this question at the very start of your merger journey is essential to put a focus on this often overlooked, yet monumental, aspect of acquisitions. For more tips on how to successfully approach work culture integration, read my original post!
Do we have the M&A counsel, financial advisor, tax counsel, antitrust or anti-competition counsel, and necessary foreign country counterparts that we need?
I give great pause and ask a lot of questions of firms attempting to do both legal and financial work, especially in Europe where it is permissible. Ironically, when dealing with a significantly smaller company it may become as or even more important that they are equally so represented in terms of quality and all different types of necessary advisors. It is not a colloquialism that smaller deals take just as long if not longer as larger deals. The length of time is quite reflective of the parties experience. If approached in the right way, such guidance across the table can initiate or begin the fostering of trust and mutual respect. It is often against long-term interest to take complete advantage of an under-represented target as this creation of an inequitable deal hurts the long-term desired outcomes of these new relationships. In a perfect world, we would be comfortable to sign the agreement on either side of the table, it should never be that there is a true winner or a true loser. This is a combination for the benefit of both parties, not a conquest where there is a victor and the vanquished.
Have we done our due diligence?
The question of due diligence can cover quite a vast area of your potential merger. This includes items from ensuring that your overall company documentation is populated within a virtual data room that allows easy dissemination to pre-approved individuals and developing and maintaining detailed disclosure statements.
What are our ongoing business development goals?
Determining what your ongoing goals will be after the merger and acquisition has successfully taken place is crucial. Merging with a company to then blindly go about daily operation would be a sad way to start this new phase of your company. It is important to not assume that everyone on your team is on the same page when it comes to the future of the new business. Outline your goals in a clear and obtainable way. It is essential to have and attribute the contribution of goals from those acquired.
What ongoing training opportunities do we need to offer?
With new acquisitions comes new processes. It will be advantageous for the M&A team to identify where ongoing training will need to take place throughout the newly formed corporation. This training will help to provide the employees from both companies a higher chance of success in integrating successfully. It is even better and exciting when the acquired business has a methodical approach to offer that can be trained on to the acquirer and the acquirer providing training on the larger business offerings. It’s far too common for large companies to become larger and more bureaucratic, only to lose their superior execution capabilities in the initial entrepreneurial phase of a business. Like children, acquired companies will keep you fresh and up to speed, make it a positive culture, not a threatening one.
How can we further integrate our two work cultures?
The integration of the two different work cultures into one unique one is not a once and done endeavor. Outlining the ways in which you will further encourage culture integration, and more importantly, the development of a new combined work culture for your new company is an essential consideration to be had before the merger or acquisition takes place. The culture discussion needs to continue through the deal exercise and post-closing with more functions, divisions, departments to be sure multiple perspectives of each culture is given a voice. Similar to the deal as a whole, it should never be the goal that one culture replaces the other. Champion an amalgamation of both cultures and you will create a richer, more diverse, and overall stronger culture. For more insight into the importance of cultural diversity in your M&A, read my article on culture shock.
John Ellsworth has successfully facilitated domestic and foreign M&A transactions for 15 years and is highly skilled in business development and providing general counsel to many types of companies, including both Fortune 1000 public companies and privately-owned businesses.