Engaging in a merger is a good idea for many reasons. Among the top reasons that companies opt to merge or leverage an acquisition are:
- To increase value and bolster the wealth of shareholders
- To diversify
- To acquire the assets of another company
- Increase overall financial capacity
- Get tax breaks
- Incentivize management
However, there are several cautions one should keep in mind and key factors to consider, including:
It’s About More Than Money
Very often, the bottom-line numbers are so enticing; managers plunge ahead with a merger –- only to realize later that the firm they acquired or merged with is not such a good fit. Other factors, including core company values, management style, innovation motivations, and the many intangibles within separate organizations, can make the post-merger situation incredibly difficult, if not disastrous.
Think Twice About Merging with an Equal
Is the proposed transaction truly the joining of equals? According to Ken Murdock of Business Value Accelerator, experience shows that mergers of equals tend not to work very well. He said the result is often confusion among who is really in charge after the deal is made. In effect, it’s better when a “big fish eats a little fish.”
a perfectly laid out spreadsheet will look different after a merger has a way of making company officials forget where the actual value of a firm is – and that’s the customer base. Will the merger improve customer relationships, build brand loyalty, find ways to serve customers better? If a merger does not result in better customer metrics, it’s not a successful merger in the long run.
Understand Your Leverage Position
Will a merger enable you to maintain your status as a standalone operation? What is it specifically that gives you power in a merger situation? If you do not have clarity on your key leverage points, you need to gain that clarity before moving ahead.
Willingness to Walk Away
Granted, this is a controversial strategy. Some in corporate America call the “walking away” tactic a pure myth in the art of negotiating a deal. But many maintain those who are not willing to walk away first in a negotiating situation are significantly compromised. Whatever the case, give this well-known bargaining tool serious thought.