Mergers and acquisitions are a part of business growth. While time-consuming, it’s crucial to carefully consider the steps in a merger and work through each with diligence to ensure that the merger goes smoothly.
The following are steps that you need to take for a successful merger.
8 Merger Steps to Follow
1. Plan Accordingly
Mergers must be strategic, and you must plan them properly. For example, you’ll need to spend time on:
- Identifying the right candidates
- Assessing potential options
- Running valuations
The plan should also consist of a timeline because mergers can take a long time, as we’ll discuss further down in this article.
2. Identifying Candidates
Mergers require you to find the right candidate/partner company. Unfortunately, a company can have great financials but not be a good fit for your business. Instead, we recommend that you;
- Consider the location of the business’ activities and if that is the market that you want to expand into.
- Identifying whether the company is a competitor and what complications/benefits that would mean when merging.
- Looking at businesses that complement your own and may offer strategic cost savings.
- Weigh the pros and cons of different business sizes, such as startups versus multinational entities.
- The Compatibility of both parties’ corporate culture will also play a major role in choosing a candidate to merge with.
You may find it’s worth dealing with regulatory red tape when merging with a multinational company. However, you may prefer a fast major and don’t mind taking on the risk that comes with acquiring a startup.
3. Assess and Choose
Business stakeholders will then need to assess all potential candidates for merging and decide on the ones that best fit your company’s strategic growth plans.
4. Run Valuations
After contacting potential candidates, they’ll provide you with a wealth of information, such as financial information on the business. It’s up to your accounting team to go through this information to:
- Create a final financial analysis
- Value the company
You’ll want to scrutinize the financials to find weaknesses and strengths that are crucial to a successful merger.
5. Negotiate
If the financials are acceptable, it’s time to negotiate. You’ll need to:
- Provide a proposal to the company
- Discuss costs and negotiate
It may be very challenging to agree on the terms of the merger during negotiations, but its essential in any merger. If both parties agree on terms, you can proceed into the final merger steps. Remember, a good compromise is when both parties are dissatisfied.
6. Contract Stage
Multiple contracts and transaction documents must be created and signed for the merger to go through. Click here for a sample of a merger agreement from the SEC official website. A few of the many documents that will be required here are:
- Sales contract
- Purchase contract
- Financing information
All contracts must be signed by both parties, and this can take some time to work through.
7. Close
The closing process can now begin. Closing will involve both companies merging in accordance with the contracts. You’ll want to have a strong plan in place to help the close go smoothly. HR will need to oversee the entire closing, logistics of the merger and handle issues that arise.
8. Monitor the Merger
Once everything is finalized and the entities are merged, there’s still a lot of work to do. A lot of ongoing monitoring will take place, such as monitoring for:
- Income
- Growth
- Return on investment
- Etc.
How Long Does a Merger Take?
The process of a merger is long and tedious. However, mergers can be quick if it’s a small company or extensive for a larger company. Many mergers will take place in the long-time span of: 6 months to 3 years.
A lot of time, effort and money must go into the process of merging to ensure that the merger is eventually finalized. Following the merger steps above is a good starting point to optimize the timeline. Looking for merger consulting? Reach out today.