Mergers and acquisitions are among the easiest ways to expand a business.
But if you’re going to enjoy a smooth process, it’s vital that you understand the risks involved. When you understand what might go wrong, and why, you’ll be in a much better position to prevent it from happening.
Thorough Due Diligence
The term ‘due diligence’ has a technical meaning. But for our purposes, it’s worth considering it in a broader sense. You’ll need to not just explore the financial health and liabilities of the company you want to merge with, but also their obligations toward employees, the intellectual property they hold (or don’t hold) and the debt you’re assuming.
It’s important to be thorough. A small oversight could lead to you assuming debts and responsibilities that you hadn’t priced into your decision.
Cultural and Operational Compatibility
We’ve mentioned that due diligence is about more than legal and technical checks. It’s also about considering qualitative factors, like the culture under which the two businesses operate. If these differ considerably, reconciling the differences might be painful.
For example, one half of the merge might be accustomed to wearing casual clothing to the office, and working remotely for much of the week. If the other has a more traditional, formal approach to the office, then the mismatch might cause friction and resentment. The same problem might occur when there’s a difference in management style, environmental values, or time off.
History is littered with examples of mergers that didn’t quite work out because of cultural conflict. Make sure that you’ve investigated the possibility of this happening to you, ideally before the merger is finalised. This investigation might prompt you to take special precautions. Or, you might decide to abandon the merger entirely. It’s better to find out early on whether this is necessary.
Legal and Regulatory Compliance
If you want to avoid compliance issues, then you’ll want to make proactive efforts to identify problems in advance of the merger. Regulators often take a close look at deals of this kind, especially if they have the potential to disrupt the sector and stifle competition. There might be anti-monopoly rules to account for, for example. For mergers that cross national boundaries, the regulatory environment can be considerably more complex.
If you want to stand the best possible chance of ending up on the right side of the law, then it’s a good idea to seek professional help before you get started. By investing early on in the right full service law firm, you’ll be able to protect your growth in the long term, and avoid the expense that comes with having to rearrange your operations, defend yourself in court, or deal with negative press.
