Although few business owners build their companies in anticipation of merging with another, the right merger can greatly enhance commercial results. Mergers aren’t a one-size-fits-all strategy, though, and which structure is pursued will shape everything from integration planning to governance and shareholder dynamics.
During due diligence, both companies will examine each other’s income statements and balance sheets, analyze supply chains, assess intellectual property, and determine whether there are any regulatory or pending lawsuit concerns. Both companies will also need to hire valuation professionals, preferably utilizing discounted cash flow (DCF) methodology, which values a company based on expected future cash flows.
After determining the value of each business, the two parties will work together during integration planning to determine how operations, systems and processes will be integrated to create a new company. This may include deciding which company’s leadership team will take on the helm, how compensation and benefits will be structured, and how to manage cultural differences.
Once all the details are agreed upon, the legal paperwork is finalized and the acquisition is closed. This is usually when ownership of the acquired firm transfers to the acquiring company.
During this time, it’s important to keep employees informed of the acquisition and any potential impacts to their job and company. Keeping employees in the loop prevents frustration, minimizes costs and disruption to operations, and helps optimize the value of the acquisition.
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