Businesses merge for many reasons, from seeking financial security to gaining access to new markets and building scale. Regardless of the motive, there are certain things to consider before you enter into merger discussions, such as:
Before you start talking terms with potential partners, it’s important to make sure that your business is in good health and ready for a merger. This is called due diligence, and it can involve everything from reviewing financial statements to interviewing staff and signing non-disclosure agreements.
The type of business merger you pursue will shape everything from integration planning to governance and shareholder dynamics. There are three main types of M&A:
A horizontal merger is when two companies at the same stage in the value chain – such as one manufacturer merging with another or a retailer combining with a supplier – combine. This allows the new entity to reduce competition, increase market share and diversify its products and services.
A consolidation is a legal method of acquisition that’s not available in all states, but it is an effective way to restructure a company and achieve economies of scale. When effecting a consolidation, you will need to draft a plan of consolidation, which is then approved by the shareholders of the disappearing corporation and an articles of consolidation filed to effect the transaction. In a consolidation, the assets of one company are exchanged for the stock of another company, and then a new entity is formed.
About the Author
