How to merge two businesses

Posted on: February 1st, 2016

A business merger can be a complex process, but one that can reap huge rewards. There are a number of financial, cultural, and ethical considerations to take into account when attempting a business a merger. However, these potential stumbling blocks can be overcome with careful management and preparation, plus strong and experienced legal and financial advice.

So, what should you look out for when considering a business merger?

Vertical or horizontal?

Be aware of the type of merger that your companies are undertaking…

Vertical: A vertical merger is when a company merges with a supplier or customer. It is when two businesses at different stages in the same supply chain join operations. This is usually for the purpose of creating efficiencies in the overall operation.

Horizontal: A horizontal merger is when two organisations are considered as competitors merge together. This is typically done in industries with only a few major players, due to the potential market share gains by completing the merger.

Negotiations

Details of the partnership must be negotiated meticulously before progressing any further with a business merger. There will be intricacies regarding each company’s assets and relative values, with one side inevitably worth more than the other. Owners, key stakeholders, and board members should be involved throughout this process, in order to hash out the fairest deal for both parties, including their workforce.

Seek advice

There are very strict regulations against monopolies in the Europe and the UK – and lots of complex official processes to undertake when committing to a merger or acquisition at a larger level. To avoid legal issues, it’s essential to consult lawyers early in the process. Coffin Mew are experts in mergers and acquisitions, having dealt extensively with the buying and selling of businesses, equity fund raising, corporate reorganisations, de-mergers, and much more. For more information about our services in this area, visit this page.

Due diligence

Due diligence doesn’t just mean checking for tax issues, questionable transactions or illegal activity, it should also take into account commercial, ethical and philosophical aspects of each company. If the directors of one side have an ideological aversion to one of the other´s products or services, or if they believe it to be the wrong ethical approach, this will likely cause conflict further down the line.

Branding up

Consider whether the merged organisations will continue under the brand name of one, both, or neither. This will undoubtedly form part of the negotiations, and will often be based on which brand has the best current position within the target market.

If you are looking to totally re-brand, collect quotes from branding experts and consider how it will impact all of your communications, including your website.

Cultural identities

There’s a strong chance that the cultures of each business will be somewhat different. You should take time to identify where the similarities and differences are, and prepare for how you will combine the teams and the values by which they work.

Of course, it won’t always be two full teams that join together, as we’ll explore in the next point…

Tough decisions

When a merger occurs, there’s usually a shake-up of the teams. Unfortunately, this often means redundancies. Directors need to make careful decisions and take expert employment law advice about which individuals will be offered redundancies, and which will be kept to operate the new workforce.

With any luck, this troubling side effect of the merger will be limited, but that very much depends on the structure of the teams and the nature of the roles within them. Be prepared to make tough business decisions at this stage, for the good of the wider company.

Press on

All being well, and once the paperwork is completed, it is time to announce your merger. Make sure that all staff are fully informed of what it means for them before you do so. If your merger is particularly relevant to one local area, get in touch with the local press. Make use of different media to promote the deal – video, audio, and the written press releases. These are exciting times, so celebrate the occasion and communicate to the world why you’ve decided to join forces, and how your customers and clients will benefit from the joining of forces!