In Part 1, we reviewed some of the potential advantages of an acquisition or merger in this volatile economic climate. When considering an acquisition or merger, however, a business owner must also assess the risks and potential disadvantages of an acquisition or merger. Research and preparation, including a consultation with an M&A expert, can go a long way to mitigate the possible disadvantages.
• Merging Cultures: The compatibility of the cultures of merging companies can be a significant factor in talent retention and, ultimately, the success of the resultant organization. When mishandled or ignored up front, clashing cultures forced to merge are more likely to result in a net loss of talent or employees over time. These problems can be avoided to some extent by assessing both corporate cultures carefully before the merger, negotiating how they will be blended, and requesting post-merger employee feedback regularly.
• Timing: On average, acquisitions and mergers take approximately 4-7 months, however, the potential for unforeseen delays is always present. To minimize the risk of delay, it is imperative that both parties organize and prepare for due diligence which includes the disclosure and analysis of key seller documents such as financial statements, previous state and federal tax filings, all applicable contracts, property and equipment leases, third party obligations, intellectual property documentation, non-disclosure, agreements, and material agreements.
• Budget: It is important to have a budget for any potential acquisition or merger. Items may be uncovered during the due diligence process that may increase the cost of the acquisition, which may cause the buyer to re-evaluate whether the transaction still makes sense in light of the budget.
• Employee stress: The news of a pending merger or acquisition can bring an extraordinary amount of stress to the employees of both companies. Fear of redundancy, lay-offs, changes in structure or strategy, and an uncertain future can trigger the resignation of talented personnel based on rumors alone. This loss of talent can be minimized by keeping employees as informed as possible throughout the transaction process.