How To Merge Two Businesses Successfully: Issues To Consider
To merge two businesses successfully, you need to have very good knowledge of both businesses before you can archive such.
You consolidate two businesses into one when you merge your business with another business. Here, all the businesses involved in the merger join their assets, staff, and other resources.
Both businesses will form a single legal entity, and things can go well, or the times ahead can be difficult. Everything depends on your level of preparation before the merge and the communication between the businesses.
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The aim of this article is to provide you with tips on how to merge two businesses successfully. Before you indulge in any business merger, there are certain questions you must have answers to. Such questions include the following:
- Should you sell your business to another business instead?
- Will the merger improve your business?
- What are the benefits of merging another business with yours?
Your answers to the above questions will help you successfully merge two businesses. Keep reading to know more about how to merge or combine businesses and the important steps involved in the process.
Overview of Business Merger and Acquisition
One of the important steps to take during the process of a business merger is to consult a merger and acquisition expert. First, you will need to know the best sort of merger that will be perfect for your business.
Should you own multiple businesses or companies, you can decide to merge them into a single entity. Another available option will be for you to buy an existing business and join it with your own business. There is also the third option where you can sell your business to a larger company.
You need to understand that the type of merger is greatly dependent on the connection or the relationship between the two companies.
Different Types of Business Mergers
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Conglomerate merger
This is the type f merger that takes place between two companies that have little or nothing in common.
For instance, a sports company might consider a merger with a healthcare company. At first glance, a conglomerate merger might make little sense, but a critical analysis shows that it reduces business risk for both companies by diversifying their industries while allowing each of them to grow.
The two companies might be seemingly unrelated; they can support each other with their products and services.
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Vertical merger
This kind of merger is seen between businesses or companies in the same industry. Most times, companies focus on different stages of the production process. An automobile company might merge with a haulage company.
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Horizontal merger
For a horizontal merger, two companies or businesses that provide identical or similar products come together.
The two companies are often direct competitors and serve the same market. A very good example is the merger of two software companies.
The advantage of the horizontal merger to the companies involved is that it reduces competition and inefficiencies within both companies.
Also read: How to hire the right employees for your business
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Concentric merger
This is the type of business merger that involves two companies with different products but has the same customer base.
A very good example is the merger between a primary healthcare company and a pharmaceutical company.
Tips on How to Merge Two Businesses Successfully
Here are the major issues to consider before you settle for a business merger or acquisition.
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Analyze the health of the businesses or companies involved in the merger
Before you agree to merge your business or company with another company or business, it is imperative that you assess the health of the companies involved.
You need to ensure that they are financially capable of going through the merger. Examine the liquidity of each company involved to ascertain if the company has enough capital to complete the merger transaction as well as enough capital to stay afloat at the end of the merger.
You need to do your due diligence on the company or business you are merging with. Critically analyze each company in terms of strengths, weaknesses, and the perception of the public about them.
Without good information about a business or company, you are at the risk of testing the waters with both feet.
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Have set out goals for your merger
After you are convinced that the company or business you want to enter into a merger with is in good shape financially and otherwise, then outline the things you wish to gain from the merger. You must have a reason for entering into a merger in the first palace.
When you have a clear set goal, it will help you determine the type of merger that is best for your company or business. Do you wish to expand into a new market or increase your customer base? Are you looking to reduce the cost of production?
Do you wish to streamline the workflow of your business? These questions will help you in identifying reasons for entering into a merger in the first place.
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Outline the terms of the merger
This is the time to figure out how the merger will go. Are you going to change your business or company and operate under a unified name?
Will your company retain its name while the other changes theirs? What is the information to be revealed to each other in the merger?
What are the exit strategies in place should there need for one in the future? For you to merge two businesses successfully, you have to determine the terms beforehand.
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Develop a purchase and sale agreement
This should be the responsibility of your attorney during a business merger. Although you already the letter of intent that has the basic outline of the deal, the purchase and sale agreement is more detailed.
The purchase and sale agreement should include the names of the companies involved, the asset and liabilities of the business, the conditions of the sale/merger, how the merger will be financed, the business operational model, etc.
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Create an internal merger transition team
This team will help you ensure that the businesses merge successfully without any hiccup. Their job includes identifying possible cultural clashes and solutions as well as provide leadership to the companies as they gear up to join together.
The transition team ought to include people from both businesses and preferable those with management and leadership experience.
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Work through the integration of the company
After all the logistics have been settled, the merger is not yet complete. The last step is to fashion out ways to integrate the business, and it comes with a trial and error process.
There are certain things you may add, and the integration might seem difficult, and there are also other things that will make company integration run smoothly.
You simply have to try and see for yourself. Employees will adjust to new ways of working, and the transition team will be faced with myriads of obstacles as well.
Conclusion
You have been provided with tips on how to merge two businesses successfully; all you need to do is put it into good work.
Make no mistake; a business merger is not a stroll in the park. You have to put in the work before you can get the job done properly.
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