The prospect of a merger is an exciting one for executives who are facilitating a transaction. They will potentially see rapid expansion and will gain access to new talent and intellectual property. However, the enthusiasm about the prospective merger does have the potential to overpower people’s necessary sense of caution.
Due diligence is a key part of any major transaction for an organization, especially one that could have broad-reaching consequences like a merger. Cutting corners during the due diligence process can be a mistake that ends up causing major headaches for the organization that results from the combination of the two companies.
What do people often overlook when evaluating the benefits of a merger?
1. Legal liability
Bad production batches and toxic work environments can eventually lead to expensive litigation against a company. The liability for issues involving either of the prior organizations will pass to the newly formed merged company after a merger. Therefore, a look into company culture and any issues that the organization has had with the goods or services it provides will be of the utmost importance for quantifying future liability.
2. The risk of talent flight
Mergers can result in a major loss of talent for organizations as workers leave to avoid downsizing. If the merging organizations don’t identify the professionals at both companies that they want to retain and negotiate an agreement with those workers ahead of time, they may end up losing some of the top talent at the company. Businesses sometimes take for granted that workers will stay throughout the transition without contractually ensuring they have reason to do so.
3. Regulatory interference
There are some scenarios in which regulatory officials may intervene in a merger and prevent its completion or challenge its legality after the fact. One of the more common reasons that mergers face scrutiny is the possibility of creating a monopoly that dominates a particular market or industry. It is of the utmost importance that executives at companies considering a merger carefully examine the local market to ensure they won’t face allegations of attempting to establish a monopoly.
There are often numerous challenges involved in combining two businesses and creating an efficient, strong and unified organization at the end of a merger or acquisition process. Identifying risk factors and addressing them proactively with the assistance of a legal professional can help reduce the risk involved in large business transactions.