Situation: A company is considering a merger with a smaller company. What are the important considerations to take into account in considering and negotiating a possible merger? How do you negotiate a merger?
Advice from the CEOs:
- Look for synergies between the companies. During the negotiation, emphasize these and the mutual benefit available to both companies.
- In a merger between a larger and smaller company look for the key motivations of each party. What does the smaller company have that the larger company wants? How much is that worth to them? Make a list.
- Consider combining vs. merging. An alliance can be mutually beneficial while allowing both companies to retain independent ownership.
- Look at earn out options in a purchase scenario. What are the possible terms and the financial implications of these?
- Beware of the distraction that a merger will present to current day-to-day operations.
- Identify other parties with whom mergers are possible. Why is the target partner better?
- Partner prior to the merger – how do the two companies play together in the sand box? This can reveal cultural differences and differences in focus that will impact the value of the merger.
- Consider an LLP option – a third Company that is the owner of the two merged companies. This may present tax and other advantages.
- Look at Product vs. Service
- Product is always worth something.
- When service stops, it is worth nothing.
- Key players must work together well or the service evaporates.
- Never assume what the other party’s interests are. Make sure that both interests and priorities are discussed and evaluated during discussions between the parties.
- Ask clarifying questions anytime a topic is raised that requires additional understanding.
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