Mergers and acquisitions can be an essential strategy to fulfill several company goals. You could be a small or large company; a merger or acquisition can still benefit you. On the other hand, mistakes during a merger or acquisition are often made, leading to delays, conflict, and litigation.
The Dohrwardt Law Firm is here to help you work towards a smooth transition to avoid merger and acquisition problems. Also, I can help with any other business matters you might need after the merger or acquisition. Contact the Dohrwardt Law Firm to discuss your needs.
What Are Mergers and Acquisitions of Businesses?
Mergers and acquisitions (M&A) is an umbrella term used to describe when either (1) two or more businesses merge or consolidate or (2) one business acquires another business.
- A merger is when two businesses combine to form a single entity. To do this, one company absorbs the others' assets and liabilities under its name, and the second business shuts down. A merger may help a business reduce costs and grow its market share. This process is typically mutually beneficial. The two firms joined as one may choose a new company name that better reflects the new company's mission, or they may decide to maintain one of its names to benefit from brand awareness.
- Under a consolidation, two or more businesses come together to create a new entity that takes on both businesses' assets, liabilities, and financial resources. Companies often consolidate to increase profitability and leverage cooperation rather than competition.
- An acquisition occurs when one business buys part or all of a second business' stock or assets. Often, this process can involve conflict or a hostile takeover. The company acquiring the other business usually keeps its name, legal structure, and operations. As such, the acquired business legally ceases to exist.
While often discussed in the context of large conglomerates or multinational corporations, M&As can involve businesses of any size, including small businesses.
Before entering into an M&A, it's essential to draft a detailed merger and acquisition agreement.
This document includes essential information about the event, such as:
- The businesses' details
- What assets or stock are being purchased
- A list of the assets and liabilities of the business being bought (in an acquisition) or both businesses (in a merger or consolidation)
- The level of access each party will have to the other's financial information for due diligence
- Any other terms of the agreement
This agreement is essential and can be a source of profit or problems. The Dohrwardt Law Firm will review, draft, and negotiate a firm agreement with terms and conditions clearly and thoroughly outlined.
Should Your Business Consider M&A?
There are several reasons why an M&A may be relevant to your small business. A merger or acquisition could allow you to:
- Expand your market share – Merging with or acquiring companies with an existing market share or complementary business can give you access to better growth opportunities, including different geographic markets. By sharing expertise and experience, you can immediately expand your business rather than building a new one from scratch.
- Increase profitability – Combining two smaller businesses may allow you to lower labor costs and take advantage of economies of scale to grow your profits. When companies merge, they can eliminate extraneous staff to reduce labor costs while purchasing raw materials and supplies at higher volumes to reduce overall costs. These savings can be passed on to consumers.
- Update a product, service, or business model – If your business cannot keep up with technological advancements, another firm may be interested in acquiring it. This prevents your business from sustaining continued losses. Or you may consider an M&A with another company to access new technologies.
- Engage in corporate restructuring – If you are considering restructuring debts and equity to reduce loan costs, M&As may help you to do so.
- Increase financial resources – When companies merge, they pool their financial resources. This increase in financial leverage may open the door to new investment opportunities.
Entering into an M&A is a significant decision to make in the life of a business, so it's important to carefully reflect on your reasons for doing so.
Five Things to Consider Before a Merger or Acquisition
In addition to being clear on your goals, a range of considerations should be considered before entering into an M&A agreement. I have listed a few of these considerations below.
- Business valuation. If you're considering merging with or acquiring another business, you should first determine its worth. A formal business appraisal will help you assess whether it's worth proceeding.
- Good standing. Before entering into an M&A agreement, you should confirm that the parties are in a good place—valid and certifiable—where they were formed. If not, it may indicate financial issues and lead to problems when filing the necessary M&A paperwork.
- Company culture. When two firms combine, or another acquires one, there can be a significant disconnect between the cultures. It's important to strategize how to merge different company cultures to ensure a smooth transition.
- Intellectual property. If you're acquiring a company, you should check its intellectual property assets and whether trademarks, copyrights, or patents protect them. Also, confirm whether the business you are acquiring has any outstanding intellectual property against it, as these can take a lot of time and resources to resolve.
- Anti-money laundering. If the business you're merging with or acquiring does any business in foreign countries, you must consider anti-money laundering laws and regulations. This includes confirming whether the other business engages with banned individuals or companies.
Even for small businesses, M&As can be complex, lengthy, and potentially risky transactions requiring much due diligence. For these reasons, seeking professional financial and legal advice before entering an M&A is worth pursuing.
Contact the Dohrwardt Law Firm Today
Mergers and acquisitions can be a strategy for growth, but to do it right, you must plan and consider all the legal implications. The Dohrwardt Law Firm provides comprehensive business services to guide you through the process and act proactively.
Contact the Dohrwardt Law Firm for experienced, quality business legal services that give your company a competitive edge.