Mergers
Definition:
Mergers come into play in the world of business for two verydifferent reasons. The first is when you’ve decided it makes senseto join forces with another company to reap the rewards that comefrom your combined strengths.
A smart business merger can help you enter a new market, reachmore customers, freeze out a competitor or fill a gap in yourcompany’s abilities. Mergers can get you on the fast track tobecome more competitive. With a complementary partner, yourbusiness can acquire products, distribution channels, technicalknowledge, infrastructure or cash to propel you to a new level ofsuccess. The flexibility and power boost they provide can be a keystrategic tool for today’s entrepreneurs. And the best part is thatthey can go wherever your ideas take them.
For those business owners who dream of building an even moresuccessful company, merging with another company can presentterrific opportunities. The key is doing your homework, knowingwhat the other business is worth, finding the right company toacquire company, and working with competent professionals (lawyer,accountant, business broker). Ask tough questions and get to knowthe other company on all levels.
The second reason you’d plan for a merger is when you’ve decidedyou want to sell your company and another, existing businessdecides it would be in its best interest to acquire your firm. As arule, businesses have deeper pockets and borrowing power thanindividuals, 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 perhapsas a division or subsidiary of another company. However, businessescan’t move as fast as individuals. It may take you a year or moreto get your company ready to be merged or acquired. You’ll needto:
- Clean up the balance sheet.
- Drop poorly performing products.
- Terminate insider deals, such as property the company isrenting 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 financialstatements.
The best candidate for a merger is a company that sees yours asa strategic fit with their own firm. If you have something theywant and can’t find elsewhere, such as a unique product ordistribution channel, they may be willing to pay a premium price. Acompetitor who only wants to put you out of business is usually apoor merger prospect, however. This buyer is motivated only byprice and probably isn’t interested in preserving the business.