If your business is ready to take the next step and merge with another business, that’s great! For a business to be profitable enough or desirable enough to be attractive to a competitor or someone similar in the industry is a compliment. As the owner of a small business, you have likely worked very hard to build the business into what it is today. There are lots of angles to consider when thinking about beginning a merger of a business.
A merger is a business transaction that morphs two businesses into one. This can help them to achieve more financial success than had they been two separate businesses, often competing against one another. Larger companies often have more bargaining power with suppliers and can often achieve high profit margins. Before merging your company with a new one, it’s important to understand their financial snapshot to ensure they are a healthy and desirable business.
Things aren’t always as they seem, so it is important to do due diligence before taking the plunge from two to one. Financial records like tax returns, balance sheets and a list of assets can be a great place to start. However, before two companies can merge into one, they must negotiate so that each company is getting what they want out of the deal. You may be surprised what the other company might ask for, or be willing to concede, during these negotiations.
Ultimately, a contract will bind the two companies as one when the merger is complete. As with any business contract, there are expectations and responsibilities on both sides that are expected to be upheld. And as with any contract, there can be clauses pertaining to breach, if a company fails to meet their obligation during a merger. It’s always good to protect the business from instances in which a breaching company could impact the other.
Source: FindLaw, “How to Merge Two Companies,” accessed on Oct. 2, 2017