BUSINESS MERGER SUCCESS
A Strategic Growth Tool and an Exit Strategy
A bold move!
You tend to work day to day in your business. You are doing good things, addressing problems, looking for that next customer. Hopefully, you have a business plan in place that you are using as a guide to value growth.
But, are you getting to where you want to be in the timeframe you would like? You may need to consider something bigger.
Depending on your timeline, your long-term goals, your exit planning and your succession planning, a merger (or acquisition) can be the perfect tool toward achieving the growth you need.
Approached carefully, merging with another company can make all the difference in achieving what you want, when you want it. But how do you go about it?
The first step is to determine what you are trying to achieve. A few options to consider:
• Absorb another business doing the same thing you are doing. Get instant growth. Get the savings of eliminating overlapping infrastructure. Further growth should come from new customers and more market presence.
• Merge with a business that has complementary products or services. You can get both sets of services into the existing client base of both companies, as well as going to market with a broader set of offerings.
• Either way, you may want to look for a business with an owner in a different age bracket:
— If you are closing in on retirement, and with an exit date in mind, you may want to merge with a business owned by someone 8 – 10 years younger. Over time, this person can buy you out as you exit. It’s a win-win exit plan.
— If you have many years ahead of you, you may want to look for someone closer to retirement. You can be part of that person’s exit plan, buying him/her out as his/her exit date gets closer.
Be careful! There are, of course, hundreds of legal, financial, tax and risk management issues to address. But before getting into all of those, does this merger even make sense?
• Is there a personality and compatibility fit between the two owners?
• Is there a fit based on personal goals and timing?
• Does it even make sense from a business standpoint?
How do you know? I have found that the best way to really get good answers is to get in a room and start building the business plan for the combined entity.
We have facilitated many of these discussions. We don’t start with the ownership percentages, salaries, distributions, or company name. All that can come later. We start with a discussion of what the combined efforts can produce in terms of revenue, profitability and growth in business value.
These discussions also help to see how you work together as you navigate through a plan for the combined company. You are going to discuss the company, the industry, clients and all facets of a business. You will build a common vision early on. If you can’t get along through this exercise, you probably don’t want to pursue a partnership.
This does not mean that you will avoid problems in the future, but it will give you a good sense of the other person. It is much better to figure out if this simply won’t work BEFORE you sign the deal, avoiding the cost and chaos of a messy business divorce.
This can be a fantastic business value growth and exit strategy but make sure you are thorough in your assessment!
Read more on: Exit & Succession Planning
David Shavzin, CMC