Businesses sometimes use a strategy called merging to help them broaden their reach into new markets, strengthen their competitive stance, or obtain new technologies and expertise.
In this guide, we’ll be explaining exactly what mergers are and the benefits they have to offer for your business.
What is a Merger?
The term ‘merger’ refers to the amalgamation of two similarly-sized companies into a single entity, which is then owned and operated as one.
During the merger process, both companies give up their individual stocks and issue new stocks for the combined entity.
Why Might Two Businesses Merge?
Typically, there are two reasons why businesses may merge. These can be described as financial and strategic mergers.
A financial merger is, as the title suggests, carried out for financial reasons. This could be to generate money quickly or it could be done as an investment.
A strategic merger is carried out as a solution to a problem or multiple problems. For example, joining businesses may assist in expanding into new markets, or to access more assets and resources. Companies may also merge in order to lower tax liability, or to eliminate competition between the two businesses.
What are the Benefits of Merging Businesses?
There are a number of advantages to merging businesses. These include:
Obtaining Staff & Skills
By merging your business with another that has high quality staff and additional skills, you can significantly boost the intelligence and knowledge within your industry. What’s more, by merging with a business that has a good management system in place, you can improve your own.
Accessing Funds or Assets
If you’re looking to start a new development but have limited funds or assets, merging with a business that has better production or distribution facilities is often less expensive than building your own.
Improve Your Business’ Performance
If your business is underperforming, merging with another business can potentially help you to improve your regional or national growth and is typically less expensive than expanding internally.
Accessing a Wider Customer Base & Market Share
Your offers can benefit by merging with a business that has existing distribution channels and systems. This will help you to reach a wider customer base and increase your market share in a more affordable way.
Diversify Your Products or Services
If your business is looking to diversify its products or services, a merger could provide existing products or services which you can deliver through your own distribution channels, without having to develop your own from scratch. This, of course, is much more affordable as you eliminate the need to design, develop and establish new products or services.
Reduce Your Costs and Overheads
By merging, you have the ability to lower your costs and overheads with shared marketing budgets and increased purchasing power.
Eliminating Competition
Merging two businesses in the same market eliminates competition and benefits you both thanks to the reduced advertising costs which would otherwise be spent on competing with each other.
How to Decide if a Merger is Right for Your Business
Before diving headfirst into a merger, it’s important to consider the following questions carefully to determine whether or not it is the right move for your business.
Is Your Business Ready for Growth?
Mergers can lead to rapid growth. This requires some level of good financial health to begin with, so you can feasibly invest in a new future.
Take the time to consider how your business will fund the transaction and level of liquidity required to carry out the merger successfully. It’s key to have a detailed financial strategy in place.
Is the Target Company a Good Fit for Your Business?
If you have a target company in mind for your merger, it’s essential to first carry out some due diligence. This entails lots of research and investigating into their viability, and how merging with them will affect your own business.
It’s more than just looking at their balance sheet. Explore their existing clients, employees, technology, operations and all legal aspects of their business, such as tax issues, debts, supplier and employee contracts plus any other existing legal proceedings which could potentially impact your business.
Professional Merger Advice
Without professional guidance, mergers can be complex, time consuming and potentially damaging to your business if done wrong.
Thankfully, by getting an experienced accountant on board, you can carry out a successful merger that has been carefully researched and skilfully negotiated.
At Ryans Chartered Accountants, we’re here to help you:
- Determine whether a merger is right for your business
- Identify potential target businesses
- Screen targets for suitability
- Develop a negotiating strategy
- Raise the necessary capital
- Develop an integration plan
- Optimise the tax and financial position of the combined enterprise
Allow us to give you the right kind of professional advice on managing your merger successfully and reap the rewards.