Mergers allow businesses to grow, reach new markets or reduce costs. However, without proper preparation, they can also create unexpected problems.
Before saying yes to a merger, it’s important to understand what you’re getting into. Here are the key areas to review before moving forward.
Financial health and liabilities
Start by reviewing the other company’s financial statements. Look at revenue, profit margins, cash flow and debt. Be aware of any ongoing or past financial issues. This includes loans, lawsuits, tax problems or unpaid invoices.
Existing contracts and obligations
It’s also beneficial to examine the company’s current contracts. These may include supplier agreements, customer deals, leases and employment contracts. Some contracts might have change-of-control clauses that are triggered by a merger. It’s important to check for any long-term obligations that could become your responsibility after the merger.
Company culture and operations
It’s essential to consider how the other company runs day to day. Do they have similar values, goals and leadership styles? Are their systems and processes compatible with yours? Cultural clashes and different workflows can make integration difficult and lead to low morale or poor performance.
Compliance issues
Make sure the company meets all legal and industry requirements. This includes licenses, permits and data privacy policies. Non-compliance can lead to penalties or delays after the merger.
Mergers can be complicated. Thorough due diligence helps ensure your business makes informed decisions. Seeking legal guidance should also form part of your due diligence.