Exploring a company merger: what are the steps?

Professional advisers commonly use the abbreviation “M&A” which stands for “mergers and acquisitions”. Professionals lump these two things together because the legal and administrative procedures required for both are almost identical. However, they are quite different beasts. A merger is when two businesses come together to form one bigger business which, hopefully, enables all involved to grow and prosper in a way that they could not have done as two separate businesses. It’s akin to a marriage. On the other hand, an acquisition is when a bigger business buys a smaller one. In effect, absorbing that small business. It’s akin to a big fish eating a little fish.

If you run a business and you’re considering a business merger, then there are some recommended steps that you should take.

Do your homework

It may be that you have already identified a target business that you believe would make for a good merger, or you’re looking for such a business. Either way, you need to identify clear and compelling reasons for wanting to do a merger. Identify your goals and the strategy you intend to use to achieve them.

Your professional advisers will carry out all the necessary due diligence in due course, but you could and should carry out research in advance in order to better understand the nature of the target business. You can spend some time researching the filing history of the company and perhaps even “Googling” and reading their social media posts (if any). You can also take the opportunity to talk to current and former employees and managers who can provide a lot of information about the strengths and weaknesses of the company.

You should also enter into preliminary discussions with your target merger partners and it is crucial that you get your case for a merger clear before those discussions commence. If your visions do not chime with or align with the visions and ideas of your counterparts in the target company, then your plans for a merger are unlikely to go anywhere.

Appoint professional advisers

If the merger is agreed in principle, both parties must appoint professional advisers, solicitors and accountants. The professional advisers will embark upon the due diligence process which includes such matters as company accounts, financial history, employee and HR issues, regulatory issues, property matters (both real estate and intellectual property), tax issues and ensuring that neither party has any ongoing or pending lawsuits against it.

This is also a good time to seek funding for the merger if required, and also to settle valuations for the larger company and the smaller company. While a merger is not an acquisition, it is common for one company to have a higher market capitalisation than the other. If so, these values need to be agreed upon before the merger can be finalised.

Communication is the key

A business merger is a complex process and seldom a speedy one. Shareholders, managers and employees, in particular, can get very anxious about the merger and their futures in the merged business. Hence it is highly advisable that communication is clear, constant and maintained at all material times.

It is not uncommon for merging companies to appoint a communications team to manage all the complex lines of communication and ensure that everyone who needs information, such as managers and employees, are “kept in the loop”.

Another method of building cohesion is to arrange meetings between the respective managers and employees of the two companies. Sometimes, this can extend to informal gatherings too. It really helps if everyone is made to feel as if they are a part of a great adventure.

Post-merger actions

It is often the case that the biggest challenge of a merger is not the deal itself but the fallout in the weeks, months and even years that follow. Having put these two pieces together, you want to ensure that they hold together going forward. This is not always guaranteed by the simple act of signing a document or even several documents.

Post-merger, you should ensure that employees are kept informed of any new practices and protocols and do listen to their feedback. Some employees may request a formal consultation process, and, in certain circumstances, the employer is obliged to comply.

Further, don’t just wait for problems to rear their ugly heads, actively look for problems. This is not a time to be merely responsive. For example, could there be personality clashes between senior people doing similar jobs? Don’t wait for that to happen. Rather anticipate, nay assume, that it will happen and act accordingly. Be proactive.

Above all, don’t rush things. Give the merger plenty of time to settle down and settle in. Make a priority of dealing with urgent problems and leave less urgent problems aside until the ship has steadied. Keep the communications going and high levels of staff morale by emphasising the great job they are all doing.

If you have appointed the right professional advisers who have extensive experience in business mergers and acquisitions, then use their experience and leverage it not just during the merger process but post-merger as well.

For further information and trusted legal advice regarding corporate law, get in touch with us at Carlsons Solicitors.