Acquisitions and mergers bring many risks to your business, but there are always ways around them. These significant changes require careful planning and execution to avoid potential pitfalls. By understanding the common challenges and implementing proactive strategies, businesses can successfully navigate these complex transitions.
In this post, we’ll show you exactly how due diligence and online document templates for business leaders can make mergers run more smoothly for the whole company.
The Risks to Your Business
A merger or acquisition means joining forces with a whole new team. This ideally brings the best of both worlds together - but even these arrangements come with a few obstacles, such as:
- Overvaluation of the target business
- Undisclosed debts and tax obligations
- Serious culture clashes
- Losing key talent due to uncertainty
- Different processes meshing together poorly
- Unfavorable contract changes
- Market instability during the transition
- Costs of integrating multiple IT systems
Your job is to shepherd your company through uncertain times and ensure it comes out stronger in the process. Any of the above could put a stop to this, lowering productivity and even leading to you losing top team members.
The right business practices can help you navigate these problems before they even emerge. In fact, it often starts with how you decide to structure the deal itself.
Choosing the Right Deal Type
There are two main types of acquisition worth bearing in mind; you may even be able to choose between these and a full merger. The three main deal types are as follows:
- Asset purchases: The buyer only takes certain assets and liabilities; this requires quite complex negotiations and doesn’t involve an ownership change.
- Stock purchases: The buyer inherits all liabilities and contracts while taking ownership; however, this may require confirmation from the shareholders.
- Mergers: Two companies combine, assuming the liabilities of both. This is more tax efficient but quite complex; both companies’ boards must agree.
Different situations suit different deals better; for example, mergers are better when you’d prefer a co-owner working with you.
Conducting Due Diligence
Sometimes, the best way to secure an effective merger or acquisition is to do your research. For example, you should conduct a thorough financial audit of the target company. Look at cash flow reports from the past 3-5 years to monitor its current health.
You should also check how well the company adheres to regulations. Even small problems here could spiral once you inherit them. It’s also worth looking into ongoing or past company lawsuits; these highlight serious legal issues for you to address.
The company’s actual operations are also something to take a closer look at. For example, you should look at its supply chain. Is it more efficient than your own? Are their suppliers reliable, or would finding suitable replacements help?
Finally, see how the company’s culture fits in with your own. How much will you need to adapt it to suit your existing style? Staff will naturally be resistant to change - try to meet them halfway.
Documents That Can Help Mergers and Acquisitions
The right online templates will help you bring the businesses together - you’ll also be able to set clear ground rules for both firms’ employees. Here are six documents that can help you:
- Letter of intent: This document establishes that you and someone else wish to enter a business agreement, letting you both negotiate the terms.
- Confidentiality agreement: A non-disclosure agreement helps keep sensitive business data safe when dealing with brokers and intermediaries.
- Joint venture agreement: This contract formalizes a business partnership, helping you and the other party test synergy before the full acquisition.
- Corporate bylaws: These help you set the company’s rules; these will most likely be in flux after a serious shift, such as an acquisition or merger.
- Business purchase agreement: Perhaps the most important document here, an online BPA template lets you set terms for a stock or asset purchase.
- Employment contract: Depending on how the final business settles, you might need to refresh people’s contracts and ensure they’re up-to-date.
You can get free or low-cost versions of these documents from document template sites. These also let you customize the form to fit your specific needs, such as your company structure.
Retaining Staff After an Acquisition
Even with great planning and the right documents, any merger or acquisition has teething pains, meaning you need to work hard to keep people on board. First and foremost, you need to keep everyone in the loop - a sudden merger could blindside them.
Make sure your staff knows about potential changes, up to and including restructuring. You must also identify the critical roles in both businesses and work to retain them, possibly via a retention bonus or other incentives.
Keeping both companies’ teams together helps prevent a brain drain and encourages everyone to look toward the future.
Final Thoughts
Mergers and acquisitions are rarely stress-free - even when you have an airtight plan. However, the right documents and strategies will help you make the most of these opportunities while still keeping as many people happy as possible.
