Merger
Is a merger right choice for your small business?
By Jimmy Eriksson
Most businesses crave to grow. A firm can expand by different means, but the idea of merger and acquisition is one of the most rapid solutions. A business merger occurs when two business entities decide to work together in a legal framework. This involves sharing of resources, human capital and capital equipment. A merge can be backward, forward or horizontal in competence to its activities.
Risks and Rewards
The issue of risk in a merger agreement is fundamental and of utmost important for successful businesses. The coercion of synergy to reach objectives through merger must be planned in a strategic and consistent method together with the expected partner.
A small business which is actually operating on a small-scale and striving for business growth usually opts for merger. The merger will always be two-sided, in that there will be gains and losses. A firm must always evaluate its weakness and strength for merger. These are just a few points on which to base your evaluation:
Weakness of Merger (Problems)
- Coordination and monitoring of business activities becomes more complicated
- It can be difficult to manage cash flow after rapid growth
- The decision process will be slower when a merger has been approved
- The organizational structure of the business must be modified
- Communicating and motivating staff will be difficult
Strength of Merger (Advantages)
How A Merger Works
A merger can be with a firm producing at the same stage of production (horizontal integration), with a firm supplier (backward integration) or at a stage after the firm such as a supermarket chain (forward integration). Each type of integration will represent different obstacles, and the small firm must be aware that integration will reduce the ownership, which can lead to loss of power in the future.
To avoid the worst, the merger contract and agreement must fully specify the legal framework for the owner after the merger. The agreement represents the legal paper that can solve any inconvenience or shortcoming in the relationship between the two business units, so it’s important that it be well-constructed with no loopholes or questions left unanswered. This document can save a business during its most awful days, so bringing a lawyer on board is almost a must.
If a merger occurs but isn’t successful, a split must be performed. The reverse merger process is costly and time consuming for a firm, so every detail must be investigated beforehand and both business owners should be aware of the risks. Still, if the merger is successful, it could lead to expansion and an increase in profits and visibility for both companies, and could lead to long term growth and stability.
