Definition: The combination of one or more corporations, LLCs, or other
business entities into a single business entity; the joining of two
or more companies to achieve greater efficiencies of scale and
productivity
Mergers come into play in the world of business for two very
different reasons. The first is when you've decided it makes sense
to join forces with another company to reap the rewards that come
from your combined strengths.
A smart business merger can help you enter a new market, reach
more customers, freeze out a competitor or fill a gap in your
company's abilities. Mergers can get you on the fast track to
become more competitive. With a complementary partner, your
business can acquire products, distribution channels, technical
knowledge, infrastructure or cash to propel you to a new level of
success. The flexibility and power boost they provide can be a key
strategic tool for today's entrepreneurs. And the best part is that
they can go wherever your ideas take them.
For those business owners who dream of building an even more
successful company, merging with another company can present
terrific opportunities. The key is doing your homework, knowing
what the other business is worth, finding the right company to
acquire company, and working with competent professionals (lawyer,
accountant, business broker). Ask tough questions and get to know
the other company on all levels.
The second reason you'd plan for a merger is when you've decided
you want to sell your company and another, existing business
decides it would be in its best interest to acquire your firm. As a
rule, businesses have deeper pockets and borrowing power than
individuals, and they may be willing to pay more than individuals.
Businesses also tend to be more savvy buyers than individuals,
increasing the chances your business will survive, albeit perhaps
as a division or subsidiary of another company. However, businesses
can't move as fast as individuals. It may take you a year or more
to get your company ready to be merged or acquired. You'll need
to:
- Clean up the balance sheet.
- Drop poorly performing products.
- Terminate insider deals, such as property the company is
renting from you or family members.
- Trim excessive fringe benefits.
- Make sure you're paid up on all taxes.
- Have at least two years' worth of audited financial
statements.
The best candidate for a merger is a company that sees yours as
a strategic fit with their own firm. If you have something they
want and can't find elsewhere, such as a unique product or
distribution channel, they may be willing to pay a premium price. A
competitor who only wants to put you out of business is usually a
poor merger prospect, however. This buyer is motivated only by
price and probably isn't interested in preserving the business.