Feeling the urge to merge? Read this first.
When we hear the term business merger, it can bring up visions of tons of attorneys hashing out complex plans in a giant boardroom.
But mergers aren’t just for big business. There are plenty of reasons small businesses might choose to consider one.
Today, we’ll look at a few reasons you might consider a merger and how complex that effort might be.
Understanding Business Mergers
A business merger is when two companies, usually of relatively equal size, mutually agree to combine and make a new legal business entity.
But the question remains: Why would two entrepreneurs give up their autonomy to go through such a complex process?
First, let’s talk about the complexity and then go over some of the reasons.
How complex are small business mergers?
The mushy but true answer is it depends. You’d be hard-pressed to find a business attorney or CPA who will tell you it’s a simple process.
However, the degree of complexity mostly depends on the nature of the business. And while complexity varies from business to business, there are some common hurdles every merger must clear.
The financial health of both companies, their legal structures, and their goals and objectives for the merger are two of the most significant issues in a merger. So, due diligence in these areas is primary.
Even after these areas are checked out, there are still employee and cultural considerations to overcome. Mergers mean change, and change makes employees nervous. Adding to the uncertainty is that communication about mergers is often hindered due to legal concerns.
Oh, and don’t forget the tax implications. These can derail a merger process quickly, too.
All that being said, there are still valid reasons small businesses may seek a merger. Let’s see if any of these resonate with you.
Succession and exit strategies
Mergers can be a viable method, albeit long-term, form of business succession plan.
For example, an older business owner may merge companies with a younger entrepreneur he or she is mentoring. Once the merger is complete and the finances and culture of the two entities have gelled, then plans can be made for the younger owner to buy out the older one.
This can happen in specialized industries. For example, a marketing agency that specializes in Search Engine Optimization and one that specializes in digital marketing may merge. This may be easier than simultaneously trying to acquire new talent and learning the intricacies of a new field.
By merging existing talent in profitable areas with very little overlap, two companies can mitigate two of the biggest merger headaches: finances and culture.
New markets and clients
The two agencies in our previous example could also pool their client bases. Often clients using separate companies need both of their services. So, a merger adds a level of convenience for the client and may add more revenue for the new business.
There may even be the opportunity to expand to different markets. One of the agencies may have clients in a location the other didn’t. Also, each company may have a niche market that can complement or add existing clients.
In the example of our agencies, one may specialize in business-to-business accounts while the other may have worked exclusively in the business to consumer areas. With a merger, they can potentially enjoy both.
The bottom line
Mergers are rarely simple, but they can be a very lucrative business move. If you’re considering one, speak with your business attorney and CPA. They will be able to discuss the intricacies of a merger with you so you can make an informed decision.