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Important details to consider when merging companies

On Behalf of | Aug 24, 2022 | Business Mergers

A merger is a massive undertaking even if it stands to have significant benefits for both businesses. Mergers can allow you to access the intellectual property of a smaller business in the same industry or to majorly expand your market share.

When you recognize that acquiring another business would potentially benefit your organization, you may enter into negotiations with their board of directors or owner. Before you rush forward with the merger, there are certain considerations that you need to keep in mind during negotiations and the transitional process that follows.

Mergers are subject to regulatory oversight

Especially if you and the other company are both in the same industry, your merger will likely be subject to scrutiny to ensure that it does not result in a monopoly. Federal regulatory agencies can intervene and sometimes stop mergers or business sales from taking place if it would make one entity too powerful in a specific market or industry.

Mergers lead to brain drain

The best and brightest workers at your competitor’s company can be a powerful incentive to buy the business. Unfortunately, at least some of the staff that you hope to bring on to your team will likely leave the company during the merger or shortly after it occurs. As much as one-third of your acquired staff may leave within the first year after the merger.

Some of your top talent may also leave. People tend to look at mergers as a sign that their job is vulnerable and may start to look for jobs elsewhere. You may want to negotiate arrangements with your own staff to motivate them to stay and to require similar efforts from the other business.

Your operating costs may increase

A merger will increase how many workers you have and what machinery and facilities your company owns. Some of that will undoubtedly be redundant, which means that your overall operating costs will increase during the transitional period. If you do not carefully evaluate how your companies operate and your employee rosters to address redundancy, you may find your profit margins shrinking after the merger.

Proactively planning for complications during major business transactions will help your company grow while avoiding common growing pains.