Mergers can completely change the functional abilities of your company and also its financial situation. If you overextend the company financially, it may never recover from the merger. On the other hand, adding new staff and facilities could be exactly what your organization requires to continue growing as demand for your goods or services increases.
Perhaps your company is about to approach another business in the same industry so that you can combine your operations and more effectively compete with the bigger players. Perhaps your goal is to acquire a company in an adjacent but separate industry to become your own supplier for key parts for the products that you manufacture.
Regardless of your specific goals when preparing for a business merger, the financial implications of such a large transaction are one of the biggest concerns. Proper valuations of both your company and the other business will be crucial as you prepare to negotiate.
You don’t want to overpay for the other business
Perhaps the company that you propose to merge with is actively for sale at a set price. Rather than accepting that price is the fair market value for the company’s assets, you may want to bring in professionals to review the books and determine what the company is truly worth.
You may need to make an offer that is lower than the asking price based on an independent valuation. The details of that valuation will make it easier for you to set a fair price for the transaction.
Your company’s value can be a source of leverage
A merger is different from an acquisition because many of the owners, executives and managers at both companies will continue to work at the resulting combined business. Therefore, performing an evaluation that shows how stable and profitable your business is can make going into business with your company much more attractive for the other organization.
Mergers can lead to growth or can be the starting point of significant decline for a company, so being able to show that you have the resources to handle a lengthy and expensive transition could convince the board of the other organization to approve the merger.
Putting realistic prices on both companies involved will be a very important step for those preparing for a merger or another major business transaction.