Business mergers can help make companies more successful and efficient. They can give the combined organization control over a larger market share and access to many resources ranging from facilities and talent to intellectual property. However, they are also a significant risk.
Mergers take months to negotiate and organize. They represent a substantial investment in terms of time and resources. When they fail, both companies may be at risk. It is, therefore, crucial for those preparing for mergers to address certain issues early in the process. The three matters below require careful consideration when planning a business merger.
Due diligence about liability
A company hoping to avoid major economic setbacks by merging with another organization is unlikely to disclose that it may be on the cusp of major legal issues. Those contemplating mergers therefore often need help conducting a thorough due diligence investigation. Issues related to goods and services might lead to consumer lawsuits or a sudden drop in company reputation. Complaints by employees might lead to discrimination lawsuits. Thoroughly looking at potential sources of liability is a key component of preparing for a merger.
Violating antitrust rules
Mergers can take two relatively small regional players in a particular industry and turn them into a local powerhouse. Unfortunately, in some cases, mergers result in in a company that is too powerful or influential. Mergers may violate antitrust laws by creating companies that prevent fair competition within a particular industry sector. Mergers that might to allegations of a monopoly could face regulatory pushback and may ultimately fail because the resulting business could wield too much power.
Overwhelming redundancy
Mergers create one large organization from two smaller companies. There are numerous overlapping expenses that the merged organization has to cover. Attempting to streamline the company after a merger can be a massive undertaking. That process may involve liquidating resources, laying off workers and ending leases at certain facilities. In some cases, the process of combining operations can become prohibitively difficult and may create many opportunities for litigation and financial exposure.
Looking at opportunities for a merger critically to evaluate them for the likelihood of success is important when preparing for a company-altering transaction. Business owners, shareholders and executives often need help when contemplating mergers to minimize the risk involved. Seeking legal guidance is a good way to start.