Prepare for a Successful Merger

Based on national research, 75% of mergers fail to meet their stated objectives. To be part of the elite successful 25% takes incredibly careful preparation. If you are serious about merger success, follow Meridian’s proven plan.

Internal analysis – Using a SWOT analysis format, determine your own company’s strengths, weaknesses, opportunities and threats on a pre-merger basis. (For more on SWOT, see MFA 12/02 article “Plan for Success.”) Involve your entire staff in this assessment since it is a terrific starting place for any strategic planning, not just a merger.

SWOT analysis of proposed merging target – What are the proposed company’s strengths, weaknesses, opportunities and threats? Although strictly your perception, and perhaps not totally accurate, don’t skip this step. Put your analysis in writing.

List of merger advantages – In concrete terms, list the reasons to merge. For instance, do you know with certainty that the combined volume of the merged companies will provide a supply price break? For every listed advantage, assign dollar savings.

List of Merger Disadvantages – Carefully list the potential problems or disadvantages you see in the merger. Control and egos? Duplication of competent, long-term, high paid staff? Legal or environmental challenges? Be honest and thorough.

First Joint Meeting — After completing SWOT analyses and advantage/disadvantage lists for both companies, it’s time to meet, not to sign non-disclosure agreements and share financial statements,   (you’re not ready for that step yet), but to reveal your SWOT and advantage/disadvantage lists to each other.   Expect to be surprised, and not always pleasantly. Your potential partner may have a totally different perception of your strengths and weaknesses than you do. Honor their opinion, even if you disagree with it. This meeting is a reality check, letting both parties know if they are on the same page. If you are, set the date, time and place for meeting number two. If not, no harm, no foul as you haven’t shared any numbers or critical competitive information.

Second Meeting Preparation – With agenda and expectations jointly revealed, it’s time to prepare for the management and control issues meeting (still before the financial data). Research tells us the most common reason for merger failure is disagreement about control. If we want success in our merger, we must get control issues out on the table right away.

Key Personnel Analysis – Before the second meeting, prepare an organizational chart of your company. Then record SWOT analysis on key staff members, beginning with yourself. What are the strengths you bring to the table? What are your weaknesses? How do you like to spend your time? What tasks would you prefer to avoid? Putting this on paper will help you clarify what you personally bring to the table.

Second Meeting Control Issues – Bring your organizational chart and personnel analyses to this meeting. For best results, hire a third party professional to ask hard questions like, “Who will run the company?” When there are serious spending and control decisions, who will make them? Although, it’s fine to assume you will make all decisions together as a unified team, history shows nothing is further from the truth. You are getting married and you will disagree. If you can’t come to agreement about each of your responsibilities and authorities, don’t go any further.

Where will headquarters be located? Both CEO’s typically think their own office is just perfect for the combined company, with neither wanting to give up comfortable turf.   Don’t gloss over this office location decision and decide to get back to it later. If you can’t come to agreement on where the headquarters office will be located, your merger won’t work!

Proform an Organizational Chart – Your final second meeting task is to rough out an organizational chart of the merged companies. Can you get rid of duplicate positions? Will you need to create new ones? For instance, typically, the two individual companies could not justify a human resource manager, but under the merged company, that changes. Would one of the current controllers work well in HR? These are the type of discussions that joint work on an organizational chart foster and make for strong, healthy organizations post-merger.

The Financial Nuts and Bolts – With the new organizational chart, you can now get down to the physical aspects of combining. Will one company be merged into the other? Or, will you form a new entity; donate needed assets, eventually eliminating the two original corporations? What will happen to real estate held in family trusts and partnerships? Get help from your attorney and CPA for legal and tax ramifications. Don’t let any professional tell you combining is too complicated to be done. Where there is a will there is a way, and we’ve seen some very creative ways!

Consider the Unthinkable – Finally, just when you are emotionally high from the joining process, come down off your pedestal just long enough to consider what should happen if one or both of you don’t want to continue in partnership. How will you unwind this thing? Although you don’t want it to happen, it’s better to be prepared and know your exit strategy, even if you never need it.

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