Mergers and acquisitions are a common occurrence in business. At one point in your business growth, you might decide to allow your company to be acquired by a bigger business in the same industry as yours, or you might decide to merge with another and form a brand new entity. We understand that the entire process of business mergers or acquisitions can be tricky, but if you know the basics, it can be smooth-sailing all the way.
When And Why Does A Business Merger Or Acquisition Happen?
Many large businesses look to acquire smaller companies because it either boosts up their portfolio or offers a niche skill or specialty their business is lacking. Smaller companies often agree to them because they are distressed or they’re looking to bolster their own value and brand exposure. Either way, partnering with a larger company can effectively do the trick.
Many different kinds of business mergers or acquisition deals can be struck. Some will involve you selling completely and walking away, which is often the case in an acquisition. In mergers, we’ve seen situations where both company leaders often stay involved with one of them shifting into a new role, which may or may not be associated with the day-to-day operations of the business while the other becomes the new company’s figurehead.
Before agreeing to a merger or acquisition, we believe it’s a good idea to ask yourself is if you’re ready to move from an entrepreneur role to one of an employee. If you don’t see yourself in this role, you might not want to sell just yet and instead pursue other methods to help your business become sustainable.
What Are The Types Of Mergers?
In our experience, not all business mergers are created equal. Some businesses will unite to create a brand-new company. Other deals will involve one company essentially absorbed by the other and moving under that brand banner.
Here are the different types of business mergers you should understand as you tender your decision to sell.
- Horizontal merger. This is when two competitors in the same industry merge together, essentially becoming one entity.
- Vertical merger. This occurs when one business merges with or acquires another in their industry, but the company plays a different role in the production cycle (i.e., a customer or supplier is absorbed).
- Conglomerate (or concentric) merger. This involves two companies with nothing in common merging to become one. For instance, tech startups are often purchased by other industries to fill a knowledge or skills gap that they lack.
Mergers and acquisitions are rarely straightforward. There are other complications involved, such as employees, stock issues or organizational restructuring, to name a few. It is also important to understand the difference between mergers and acquisitions.
While the processes associated with ownership transfer have some similarities, there are some distinctions. If corporate leadership essentially remains the same, the deal is probably an acquisition. However, when sweeping changes occur, usually this means the deal was a merger.
What Should Small Businesses Need To Know About Mergers And Acquisitions?
When it comes to business mergers and acquisitions, small businesses need to look at their options and take numerous things into consideration. Here are a few key items you’ll need to evaluate.
- Are the companies a good fit? Factors you should consider as a small businesses owner include if the companies’ values are aligned and if the businesses complement one another.
- Logistics. You should have a keen understanding of all key legal, human resources, financial and intellectual property issues.
- Internal operations. It’s important you know the value of your company. If you’re considering selling or merging, get a valuation so you know your negotiating points. A good financial advisor can help.
- What are your competitors asking prices? Are there significant differences that may equate to higher values in either yours or your competitors’ businesses?
- Historical financial performances. Buyers will definitely want this information, so be well-versed in these figures.
- Future growth. Buyers will ask about projected financial growth, along with any risk factors your company faces that could be a barrier to growth. Be prepared to show any sales projections or related materials.
- Conduct due diligence by ensuring all your records, contracts, legal documents, permits, financials and any other pertinent documents (i.e., employee records and intellectual property) are available for review to buyers to examine.
- Remember, the more value and details you can provide increases the chances you’ll have more bidders to choose from.
Business mergers and acquisitions don’t happen overnight, and it could be months before a deal is reached. Additionally, it’s important for you to understand either a merger or acquisition will more than likely have a significant impact on the dynamics of your company.
Consider how it can change your brand, employees and other facets important to you. Sometimes, a merger or acquisition can come with great benefits. However, it is important to understand the changes it will bring in case you want to pursue other options to try to make your brand flourish on its own.
You’ll also need to secure a firm with experience in mergers and acquisitions that can provide you with the sound business and legal advice you’ll need. If you’re in a position where your company is distressed, and you have to make an immediate decision, then it’s time to do some reflection and think about where you want to go next on your professional journey.
HJR Global prides itself on its commitment to help all businesses grow, be they startups or existing businesses looking to get themselves back onto a path of growth. Our goal is to provide business owners like you with the knowledge and resources you need to succeed in the competitive marketplace. We’ll help get you on the road to success while showing you how to avoid any pitfalls.
To learn more about the many ways we can help you with starting, planning, managing, financing and growing your company, contact us today. We’d love to chat with you about your situation to see how we can help.
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