Many entrepreneurs start businesses and soon find larger companies expressing an interest in effecting a merger or discovering other companies that they wish to merge with. This can be an exciting time as a merger provides a chance for the business to expand.
However, mergers can be a precarious journey fraught with risks that could see an entrepreneur losing more than they gain. Here are some of the most common merger mistakes business owners should actively avoid:
Not doing due diligence
Jumping on the bandwagon with too much enthusiasm and too little forethought is a recipe for merger disaster. When a company approaches you suggesting a merger, it is incumbent on you to do the necessary research to determine that what is offered is in your business’s best interests. The other enterprise will request documents relating to your company’s finances and commission Experian business credit reports from Command Credit to determine its current financial health.
You should be undertaking similar investigations to establish the veracity and reputation of a company that proposes a merger with yours or that you are interested in merging with.
This includes tax information and a company’s standing with tax authorities, a list of its assets and liabilities, and whether it is involved in ongoing legal action. The more you know about this enterprise, the less likely you are to run into nasty surprises after signing the paperwork when you cannot get out of the contract.
Not getting professional help
The days of doing business on a golf course using handshakes as a ‘gentlemen’s agreement’ are over. A merger agreement should be watertight and binding on both parties, protecting their interests going forward. This can only happen when lawyers participate in drawing up such contracts.
If the other company’s legal team draws up a document for you to sign, consult an attorney before doing anything. The devil is in the detail in such circumstances, and a lawyer is trained to identify and question any clauses in an agreement’s fine print that may disadvantage you.
Not understanding each merger’s unique qualities
No two companies are identical, and expecting a merger to work similarly to what it did for others is unrealistic and naïve. Managers and owners tend to place too much emphasis on past experiences or industry case studies, not understanding that this merger might not follow an identical process.
Even in the same industry, no two mergers take the same course or yield similar results. Organizational culture and other contextual factors play a significant role in how a merger plays out.
Not ensuring total integration
An integration of two operations is unlikely to run smoothly. However, the waters will be choppier without adequate planning and preparation. A failure to achieve successful integration can hinder business processes right after a merger. This can affect optimal productivity from staff members.
Integration planning should start before finalizing a merger deal. Do not keep employees in the dark or wait until the last minute to assign roles. It can be unsettling for workers who might start seeking alternative employment. Their absence after your merger could profoundly impact operations.
Not fully exploring realizing optimal synergies
Ideal synergies that should emerge from a merger include cutting costs, expanding operations, and combined human resources assets and technological advancement. Do not overestimate how much money you hope to make or save and assume that it will happen overnight.
Expect a period post-merger where things take a while to settle. You will only get to see the actual benefits of this action after some time, and your focus should remain on boosting income instead of saving costs at first.