mergers and acquisitoins

Identifying and Overcoming Risk of Mergers and Acquisitions

From marriages to mergers, the beginning of any relationship goes through a period of adjustment. It’s how you manage the transition that determines if you’ll move forward hand in hand or walk away with regret. Risk of mergers and acquisitions is something you need to prepare for to ensure the safety and success of your business. 

Mergers and acquisitions have been around almost as long as commerce. However, they come with risks and liabilities. Customers, staff, and business viability itself are at stake if you don’t get adequate support and advice before, during, and after the process. Our goal is to provide you with a road map that will minimize the risks and support a successful venture.

Is There a Difference?

The term mergers and acquisitions is almost universally used together. However, they are not quite the same thing. Each has its own risks and benefits. The nuances and situations are different and they may require a different approach. 

In short, a merger is when two businesses combine to create a new company. They may or may not use the name of a previous entity or create a new brand name altogether. This is a good option for companies that have separate but complementary product lines or when one business wants to expand and needs the help of a larger, more successful or established business.

Acquisitions occur when another, usually larger, company purchases another business outright. This is a good option for a smaller company that is having financial issues or when a small business owner wants to retire or liquidate. 

In both cases, the new entity may have to consolidate assets and staff to avoid redundancies. It can be a stressful transition for all stakeholders, including staff and loyal customers. 

That’s why it’s essential to move forward carefully and avoid mistakes.

Risk of Mergers and Acquisitions

On their face, a merger or acquisition seems like a win-win for both parties. A company that’s struggling gains financial and managerial support. More established companies or startups are able to expand or grow their audience. However, any transition or change naturally comes with some risk. Like most things in business, especially over the past few years, it’s a roller coaster.  

Managing the risk of mergers and acquisitions while preserving brand reputation, financial stability, and trust is important. Conducting due diligence during the planning stage is essential. Some of the risk is inherited and must be sorted out before you put your money and reputation on the line. 

The risks inherent in any type of business venture are financial, emotional, and strategic. 

The first landmine is to avoid overpaying for an asset. You can avoid this with a thorough analysis of current value and potential future gains. Is the company you’re considering over-valued? Are there built in risks or problems that are being concealed? An objective, independent analysis by an outside party can also help you avoid associated problems like insufficient capital or a potential public relations nightmare.

You also have to deal with staff anxiety. This can be dealt with through proper cultural assimilation, transparency, and outreach. Get input from staff at all levels, keep an open mind and open doors at every step of the process. Have a clear vision and communicate effectively. Identify leaders and develop a value-based culture. 

Another element that can lead to confusion or put the entire process in jeopardy is underestimating the time, money, and resources needed for a successful transition. Nothing happens overnight, and it may take some time before the new normal begins to really feel normal. 

The most important element of overcoming unrealistic expectations comes well before the transition begins. Make sure you have access to the target company, obtain a correct analysis of infrastructure costs and capabilities, and conduct sufficient evaluation and oversight. 

Last of all, make sure that you have a detailed plan and clear, uncluttered focus. Develop an action plan that keeps your mission and goals in mind.

 


 

This blog article is not intended to be the rendering of legal, accounting, tax advice or other professional services. Articles are based on current or proposed tax rules at the time they are written and older posts are not updated for tax rule changes. We expressly disclaim all liability in regard to actions taken or not taken based on the contents of this blog as well as the use or interpretation of this information. Information provided on this website is not all-inclusive and such information should not be relied upon as being all-inclusive.

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