Merging with another business can be a beneficial decision. Your company could grow much more quickly through a merger than it would be through typical business development. Rather than competing with that other business, you will now pool your company’s resources with theirs to accelerate your growth and increase your profit margin.
Not only might you have access to a bigger portion of the market after a merger, but you also benefit from the other company’s existing resources. Their real estate, branding, staff and equipment can all benefit your company. You can also start sharing trade secrets like proprietary processes and client lists.
For most businesses, negotiating a merger primarily requires finding a way for both businesses to agree on the terms. In certain situations, however, government regulatory agencies, like the Federal Trade Commission, could involve themselves in the merger and even take legal action to prevent it from occurring. When might a merger trigger regulatory actions?
Agencies want to prevent monopolies and other negative market impacts
There are federal laws that aim to protect the public by regulating business practices. Some of the most important regulations focus on the prevention of monopolization. If a single business dominates an industry either nationwide or in a particular region, that can impact the lives of consumers.
When a business has a monopoly, they have effectively destroyed or bought up all of the competition. That means they can set their prices and completely control the market for a certain good or service. Monopolies can lead to all kinds of business misconduct in addition to causing harm to the public.
Mergers often play a role in the establishment of a monopoly, so there is a lot of attention paid to the impact of two or more companies combining. The bigger the businesses involved in a merger, the more likely it is that the transaction will require careful planning and will be subject to intense scrutiny.
Agencies do sometimes prevent mergers
If you have invested substantial business resources and time into negotiating a merger, you want the transaction to move forward. Otherwise, you will lose those resources that your company previously invested.
Although it is rare, it is possible for government intervention to prevent a merger from taking place or to undo a transaction in certain situations. Having the right support during the early stages of planning a merger or other major business transaction can help you avoid triggering an investigation or other government involvement in your business.