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There are many ways to grow your business, whether you’re planning to expand your offering of service or products, open new offices in other countries or acquire or merge with other existing legal entities. There are many business benefits to merging with one or more other companies, but what are the steps involved in a merger?
- Planning
- Identify Suitable Candidates
- Assess Companies and Decide
- Valuation
- Negotiations
- Transition Documents
- Closing
- Ongoing Monitoring
1. Planning
Before you can move on to identifying suitable candidates, assessing your options and looking into valuation, you first need an initial plan. Identify areas in your business and sector where there are growth opportunities.
Then, you’ll need to create a timescale for your merger. How long do you plan each step to take? Do you have a deadline by which you need to close the deal? Once this is determined, allow for extra time. Mergers can take anywhere from 3-6 months to multiple years, so factoring in extra backup time is key.
2. Identify Suitable Candidates
Create a checklist of what your ideal candidate would have to make finding the right company quicker and easier. When creating your candidate criteria, think about the following:
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Where are they based? Do they have existing offices in locations you want to expand into?
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What competition do they pose and what competition will merging with them invite? This is an especially important consideration in vertical acquisitions.
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What business areas can they offer? In the case of vertical acquisitions, what complementary business areas would you like to have access to? Likewise, what can you offer the candidates?
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What size of business are you looking for in a candidate? Weigh up the pros and cons of startups, SMEs, national corporations and multinational large entities.
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Do they have a company culture that aligns with your existing or aspirational culture ideals? Do they have the values, employee relationships and goals you desire?
Use word of mouth, online business communities for your industry and existing sector knowledge of competitors or sector players to identify possible candidates for consideration against your criteria.
At this stage, you’ll contact candidates to inform them of your intentions for merger and acquisition and that you’ve identified them as a candidate, usually via a letter of intent.
3. Assess Companies and Decide
Assess your candidate against your criteria and remove those that do not fully align with what you’re looking for. You can do this in many ways. Create a persona for your ideal candidate and then edit out options as you go.
Alternatively, you could also score each of your candidates in your criteria areas numerically, only keeping candidate considerations that achieve above a certain score. Once you have distilled your options, the decision-making process will begin.
4. Valuation
Following your contact with candidates you’ve identified as suitable, you’ll receive financial information from those who are interested. You’ll use this to conduct a final analysis, including the value of the company alone and the financial possibilities after merger.
This financial information, along with the information you’ve already compiled about these candidates, will help inform a final SWOT (strengths, weaknesses, opportunities and threats) analysis. After valuation, you’ll be ready for negotiations.
5. Negotiations
At this stage, you’ll present your proposals for the merger to the chosen company. The proposal will be guided by information obtained at the valuation stage.
When first planning your merger process, you should have allowed for extra time - this is where such time will come in handy, as your deal needs to be looked over by the chosen company and negotiations will begin.
Once both parties are in agreement and have reached a deal they both are satisfied with, the deal is finalized.
6. Transaction Documents
Once a deal has been finalized, there are documents and agreements that need to be created to move onto the closing stage.
These documents are the Purchase Contracts and Sales Contracts and the Final Financing Strategy. The Purchase Contracts and Sales Contracts will need to be shared with and signed by the company you’re merging with and your own. The Final Financing Strategy will finalize your initial financial plans made during the valuation stage.
7. Closing
Once the contracts are signed, the deal is considered closed. From here, the transition into a merged entity will begin. The transition process will include integrating the two (or more) firms on all fronts, from cultures and roles to finances and structure.
Ensure you’ve planned for how HR will oversee the management of employees gained from the merger and look into updating their contracts. Consider logistics and communication between employees of the multiple former firms, especially where geographical differences occur. Your infrastructure will need to accommodate the evolution of your business’ size and outward capacity on all levels.
8. Ongoing Monitoring
It’s important to keep an eye on how the business is performing following the completion of the merger. Monitor progress, growth and income closely to determine your return on investment (ROI). Make structural or cultural changes where needed if ROI isn’t where projections show it should be.
Monitoring the success of your newly-merged company is important in ensuring you’ve made the right decision.
Knowing the steps of a merger is one thing but being prepared for the challenges, obstacles and risks that await you is another. We’ve created a comprehensive guide that can help make sure you’re ready.
Preparing for Mergers and Acquisitions
Be fully prepared and avoid simple mistakes during your merger and acquisition process with our ‘Mergers And Acquisitions: The Common Pitfalls and How To Evade Them’ guide.
Know the common mistakes and learn how to avoid them before making them, saving your business wasted time and money. Get your free copy now by clicking on the link below.
