As a small business owner there will likely come a point that involves taking your business to the next level and whether a merger or possibly even an acquisition may help you achieve your goals. With mergers being more common when both companies have a shared business valuation, here are some insights to consider.
Merger considerations
- Grow revenues – You have hit a plateau and don’t see how to break through the glass ceiling without a significant investment.
- Expand to new markets.
- Gain market share.
- Reach new customers.
- Expand my service offerings.
- Fill a gap in my company’s abilities.
- Fast-track to be more competitive.
- Improve profitability by reducing operational costs.
What to look for
Start by asking yourself the question, “What is in it for them?”
- Shared vision / mission / core values.
- Cultural synergies.
- Complement each other’s strengths.
- Similar valuations.
- Create synergies through shared resources.
- Operational improvement through efficiency.
What could go wrong?
According to multiple studies, mergers & acquisitions (M&A) fail at a rate of 70 – 90%. I can include myself in that statistic having gone through a merger in a prior business that I owned. The result was losing my top clients and it almost ended up in litigation.
One thing that often gets overlooked is retaining staff. If each owner is not transparent with their respective employees throughout the process, employees may not have confidence that they are going to be part of the future plans.
Some other things that could go sideways:
- Loss of my autonomy.
- Clients don’t see the benefits of the new combination.
- Integration challenges.
- Financial risk.
- Increased expenses.
Determining viability
- Ask tough questions.
- Surround yourself with a professional team – financial planner to quarterback the process, as well as an accountant and an attorney.
- Date for a while. At least one year so there can be multiple discussions and time to reflect.
