Will merging mean the end of your business?

On Behalf of | Oct 13, 2021 | Business Law |

When you merge with another company, you create a new entity, and the old companies cease to exist. Yet, if you do not do enough preparation, you could go from two companies to none.

A Harvard Business Review report puts the success rate of mergers at between 10 and 30%. If you are doing okay as is, you need to consider if you are prepared to risk what you have for such a low chance of success. Here are two questions to ask yourself.

Are the financial benefits of merging as good as you hope?

Let’s imagine you own a small magazine and hope to merge with another publication. You believe you can save money by sharing equipment and staff. You also wish to increase revenue by accessing each other’s markets.

You need to be sure the sums work out before proceeding. For instance, you will save staff costs because you can share a CEO, a receptionist and a few other positions. Yet, to produce the same amount of content, you will still need the same amount of writers, photographers and graphic designers. While you may be able to share on distribution costs, you will still need to run the printing press for the same amount of time to produce the two magazines.

Is the company you wish to merge with as compatible as you thought?

One of the magazines is about marine conservation. The other is about jet skiing. You might struggle to find staff willing to balance two opposing viewpoints, let alone readers of one, to expand your market for the other.

Mergers often seem like a good idea, yet you find reasons they are not when you dig deeper. If you want to join the ranks of the 10 to 30% of mergers that succeed, carrying out due diligence will be crucial.