How to Successfully Navigate a Business Merger

When the right situation arises, a merger can be the best choice for two businesses to move forward as one entity. No matter what the motivation for the merger may be – often it is to bring together the strengths of both companies to create something better than what either could be alone – it’s important to get all of the legal steps just right to reach a successful conclusion.

On this page, we are going to go through the basics of a business merger to discuss how the process works, what to watch out for, and much more. When the time comes to put your move toward a merger in motion, you’ll want the right legal partner for that process. Reach out to Fisher Stone today to learn more about what we provide clients in this situation.

Exploring Types of Mergers
Once it becomes clear that a merger is at least a possibility for your business, you’ll want to dive into the process of understanding mergers more clearly. Specifically, you should know that there are many different types of mergers, and only one is going to be the right option for your situation.

Below, we’ve highlighted some of the common types of business mergers along with a quick description.

• Horizontal mergers. This is a type of merger where two companies doing roughly the same thing in the same industry come together to essentially “join forces”. The result is a company that has a larger footprint and more market share than the two had individually. Many different motivations could exist for this type of move, but it’s commonly made to benefit from economies of scale and drive costs down while expanding reach at the same time.
• Vertical mergers. When two companies connect that are in the same industry but at different points in the supply chain, it’s known as a vertical merger. The most common example of this type of merger is when a manufacturer merges with a supplier. Instead of working closely together on a regular basis but remaining separate companies, it may make more sense for both parties to come together and formally join their operations.
• Conglomerate merger. This option is quite different from the previous two. In this case, it’s companies joining together that don’t operate in the same industry – often these mergers seem somewhat random and surprising from the outside. The motivation here is often diversification. Every market comes with risk, so by having the newly-formed company active in multiple markets, the risk is decreased if one market takes a downward turn.

Take the Due Diligence Phase Seriously
Many mergers start informally – maybe just a casual conversation between two owners or high-level managers. At some point, if the idea has merit, the conversations will get more serious and plenty of work will need to be done to see if a merger is going to be a good fit in the end.

This is where due diligence enters the picture. Due diligence is the process of closely examining the financial, legal, and operational health of the companies involved in the merger. When a business is being sold to a buyer, that buyer will go through due diligence to make sure they are making an appropriate offer based on the condition of the company as a whole. In this case, however, since there are two businesses involved, due diligence will need to happen on each side of the equation.

There are many different components to due diligence and getting help from the right professionals is essential. Financial statements should be reviewed, likely by an accountant, and any legal issues that the business is facing should be analyzed by a lawyer. There are also existing contracts and agreements to review and understand, and it’s also good to step back and look at the bigger picture of whether the company in question is going to be a suitable fit for a merger.

Legal Considerations and Regulatory Compliance
Plenty of legal issues can come up as a part of the merger process. For major corporations who want to join forces, there may be antitrust concerns that are brought up by the regulatory authorities – even if your business isn’t large enough to get into that territory, you still want to make sure everything is looking good for being compliant throughout the merger and beyond.

One aspect of compliance to consider relates to employment law. As the businesses come together and become one, it’s possible that you may need to layoff some employees who are redundant now that the companies have combined. For example, you might not need everyone from both human resource departments, or both accounting departments, once the merger is complete. Letting people go is simply part of this process, but doing it fairly and according to all relevant laws is critical.

There is also the matter of bringing together two separate sets of intellectual property assets. If each business has its own IP assets that will come along with the merger, carefully managing those to make sure there are no disputes later on is a piece of the puzzle that shouldn’t be overlooked. Intellectual property can include a variety of different things such as patents and trademarks, trade secrets, and more. Working with a legal team that understands IP law and how to manage such a complex situation smoothly will be a wise investment.

Planning the Integration Process
It’s going to feel like it takes a long time to get through the procedural stages of negotiating a deal, working out the fine details, and making sure everything is compliant with all relevant rules and regulations. Eventually, with any luck, you’ll finally be at the point of formally bringing the two companies together and making them one.

Of course, even at this point, the job is not done. In some ways, the work is just beginning. The list below highlights some of the components that will need to be worked out in the integration process –

• Determining the leadership structure. This is likely to be one of the first items on the to-do list. While operating as two companies, both businesses have had their own ownership and management structure, with specific people having the power to make certain decisions. But what happens when the two companies are one? Who is in charge, and why? Clarity in terms of leadership is absolutely essential for success.
• Cultural integration. Even companies that operate in the same market can do things dramatically differently and have totally unique cultures within their buildings. Bringing those together into one unit is another big hurdle to clear. Open communication is important, so everyone can understand what the motivation is behind the merger and how things will work moving forward. The more information you can share, the more everyone will feel included in the process.
• Operational fundamentals. There is also the nuts-and-bolts side of day-to-day operations that needs to be considered. What will the IT system look like, and how will customer service be delivered? People with experience in each company on the operations side need to work together to find solutions.

Common Challenges with Business Mergers
When executed correctly, a business merger can be a great thing for everyone involved. But it doesn’t always go smoothly. Unfortunately, it’s possible for things to go wrong along the way. Those issues could simply make it a little harder for the merger to be completed, or, if they are significant enough, could put the entire deal in jeopardy.

One of the biggest challenges that can throw a merger off-course is the financial strain that this process puts on both businesses. It can be surprisingly expensive to merge two companies, as there are a lot of steps to the process and it will likely be necessary to hire plenty of individuals from outside of the companies to work on the merger. If both sides aren’t ready to deal with those costs in the short term while looking forward to the brighter future that waits ahead, the deal might not make it to the finish line.

It’s also important to make sure that customers and clients continue to be served properly while the merger process is underway. If the performance of one or both companies lags while the merger is going on, that could lead to lost revenue or a damaged reputation that hurts the combined company moving forward. It’s only worthwhile to merge if the end result is going to be a company that is stronger and better positioned for success in the years ahead – so it’s critical to continue to prioritize customer and client satisfaction no matter what is going on behind the scenes.

Put Your Mind at Ease
Even if you are excited about the prospects of this merger and what it will mean for the future of your business, there is sure to still be some anxiety or nervousness involved in making such a big move. Putting the right legal team on your side will go a long way toward calming those nerves. Take a moment today to get in touch with Fisher Stone so we can discuss your merger plans and put the wheels in motion.