Pulling off a successful merger or acquiring another company depends on foresight, diligence and getting your timing right.
For many business owners who’ve survived one of the toughest recessions in recent memory, the timing couldn’t be better for consolidating two or more businesses into one or strategically buying out a rival business.
Mergers and Acquisitions (M&A): Upsides and Liabilities
Company mergers and acquisitions actually offer unique benefits, yet these also present potential liabilities that you need to be aware of upfront.
First, mergers are great for consolidation and streamlining your operating costs. Company mergers, though, can also lead to managerial tug of wars in which neither side wants to relinquish control of the company they helped found.
Secondly, both mergers and acquisitions force business owners to think about how they’re going to combine marketing and sales teams or merge files together into one comprehensible computer system.
These aren’t necessarily easy tasks, but the payoff is absolutely huge for business owners who’ve taken the time to analyze their own liquidity in an intellectually honest way and forecast future logistical hurdles.
It’s time now to turn to our list of steps that you can take to ensure the long-term sustainability of your next, or initial, merger or acquisition.
Implement a Transitional Committee
Remember how we were saying earlier that squabbles over management can topple even well-orchestrated mergers? That’s still a lingering problem in the world of business that can nonetheless be solved by establishing a transitional committee as a mediating force.
The value of both sides collaborating with a transitional committee boils down to two overriding factors – engagement and flexibility. Line managers effectively engage both parties by staying close to the logistical aspects of the looming acquisition all the while these same managers stay open to evolving conditions on the ground.
Whether you’re dealing with a merger or acquisition, moreover, a transitional committee provides the essential leadership and guidance to maintain order and stability.
Merging two or more companies together or buying out a rival can be fraught with challenges, and it’s a transitional committee’s role to address those challenges as they arise.
Ask the Important Questions
- Do you want to obtain more market share?
- Engage new markets without significantly increasing your marketing overhead?
- Gain access to fresh intellectual capital or consolidate with vertical integration?
The answer to these questions will help focus your thinking and negotiate transitional struggles or long-term financing issues.
Examine Your Liquidity and Capital Structure
We all know that two factors must be sound for a company to seriously considering a merger or acquisition – the buyer’s liquidity and capital structure. These are, of course, related concepts in that liquidity relates to the collective soundness of your liquid assets whereas your capital structure informs the ways in which your business is funded.
Taking stock of both your liquidity and capital structure’s funding is essential to determining the success of a future merger or acquisition.
Why? Because issues with either could indicate that you have fewer liquid assets and, therefore, less ability to pull off an acquisition in the first place. That said, a robust capital structure could put you on surer footing when it comes to negotiating an acquisition’s added overhead.
If you need a little help improving your capital structure in the short term, you might want to embrace an equity capital funding plan before engaging in a merger or acquisition.
Ultimately, a thorough financial health check is an essential step to take before consolidating with another company or buying out a rival. Contact an M & A expert today to plan your next move today.