Mergers are complex business transactions wherein two companies combine their operations to form one cohesive business entity. A merger might look like a manufacturer acquiring one of their main suppliers. It could also entail to competitors joining forces to offer services or products that others currently cannot.
Mergers have the potential to be lucrative for all parties involved, but they can also fail spectacularly if proper planning does not occur. Those in leadership positions at organizations contemplating mergers often need to think carefully about the implications of the proposed transaction. The three questions below can provide significant insight into the viability of a proposed merger.
Does the merger violate antitrust rules?
The federal government scrutinizes major mergers to help protect the domestic economy. State authorities also sometimes review proposed mergers and may intervene if two companies could effectively combine to dominate the local market in one industry. The rules for mergers have changed in recent years, especially for companies in the tech sector. Evaluating whether there is still adequate competition after the merger can help leadership determine if the proposed transaction might run afoul of antitrust laws.
Are there liability issues at either company?
The due diligence process of preparing for a merger involves looking closely at company operations. From complaints by customers indicating a drop in product quality to employee issues, there are many forms of liability that can take some time to culminate in legal or financial claims against a business. When either business involved in a merger has significant liability based on customer complaints or violations of employment statutes, the resulting merged organization might eventually face a lawsuit. Looking carefully at company relations with employees and its reputation with clients or customers can help the other business in a proposed merger evaluate the risk of future litigation.
How hard will combining cultures be?
Every company has a unique culture based on the values of the leadership at the organization and the personalities of the workers. Some companies promote a light-hearted and playful company culture while others are far more serious and strict.
Cultural clashes are all but inevitable in a merger situation. When two previously separate teams of workers have to learn how to cooperate with each other, conflict is likely. Significant differences in cultures and values can increase the likelihood of conflicts that lead to workers leaving the company after the merger. Sometimes, the casual culture at one business might clash with the serious culture at another and lead to harassment complaints. Thinking about not just the practical implications of the transaction but also what the organization might look like after the merger is crucial for long-term success.
Answering questions thoughtfully can take some of the risks out of complex business transactions. When leadership plans ahead for likely complications, mergers are less likely to fail and imperil the companies involved.
Subscribe To This Blog’s Feed