Factors to weigh when merging with another mid-size company

Factors to weigh when merging with another mid-size company

On Behalf of | Oct 27, 2021 | Business Transactions

Many reasons motivate Minneapolis-St. Paul businesses to consider merging. One of the more common ones is to share resources.

Most mid-size private companies specialize in a particular field or business process. It gives them a competitive edge over others in that same industry. It’s not uncommon for two different companies to join forces to bring their unique, valuable insight together to form a larger, more competitive enterprise.

One common question that businesses looking to join operations through a merger or acquisition often ask is whether pursuit of this option will lead to the demise of their existing individual businesses. It does. There are ways around this if you want to test the waters first.

Should I worry about pursuing a merger?

A merger can be a great way to grow your business. How well do you know the party that you’re planning to go into business with? Statistics previously published in the Harvard Business Review regarding mergers put their success rate at between 10% and 30%. A merger can work, however, many companies rush into them without carefully weighing their decision.

Why you might pursue a joint venture first

A merger takes what used to be two businesses and joins them together, forming a new corporate entity. The two pre-existing companies that merge cease to exist. While it is possible to undo a merger, it’s extremely complicated to do so.

If the prospect of losing everything that you’ve worked so hard for if your merged company doesn’t take off as you planned worries you, then pursuing a joint venture may be a good starting point for seeing how well the two entities work together. It allows you to join forces on a limited basis to see how well you mesh.

Factors to weigh before pursuing a merger

If things go well during the joint venture stage, then carefully consider the following when negotiating your merger agreement:

  • How to best integrate staff and equipment to minimize duplicity
  • Cash flow needed to effectuate the consolidation of your businesses, marketing and retraining of staff

The above-referenced are only two of many factors you’ll want to weigh when deciding whether to pursue a merger. Each situation is different and may impact your decision-making as to which solution is best for you.