Dos and don’ts when merging or taking on a business partner
I believe I merged successfully in 2009 with my current business partner. At the same time, we saw another operation go through a similar merge, but their approach led to confusion, resentment and eventual break up. While every merger has its problems, we approached it with our eyes open, having scoped each other out for years. We also addressed issues before or as soon as they arose to minimise damage. We actually benefited from lessons learned but freely admit we made plenty of mistakes in the process.
A merger is not an acquisition; it is a full consolidation of two previously separate small businesses. A true merger in the legal sense occurs is when both businesses dissolve and fold their assets and liabilities into a newly created third entity. This entails the creation of a new business.
- Do take your time to get to know the other business owner(s), their personalities, and commitment for the future.
- Do your due diligence; checking to make certain there are no hidden pitfalls is essential. Professional help is advised, but here are the main areas that should be covered:
- 3 reviews of financials
- history of the business
- description of how the business operates
- details of any debt
- employee contracts and liabilities
- property leases, fixtures and fittings
- customer files
- any other documents which are pertinent to the smooth operation of the business
Even though there aren’t a lot of people who enjoy reading financial statements, it is essential to review them, as you will be taking on any liabilities or issues that pop up later.
- Do understand that the initial stage of a merger generally takes 3 to 9 months.
- Do accept that mergers can damage your own business performance because of time spent on the deal and a mood of uncertainty. Keep an eye on customer service, as it is far easier to retain an existing client than acquire new ones.
- Do realise the real work of making this merger successful has just begun when you sign the agreement.
- Do expect an initial lack of productivity and some teething problems with employees and workplace issues.
- Do provide a consistent message to staff from the top down to both sides simultaneously.
- Do have consistent accountability and compensation throughout the business for similar positions.
- Do develop new ways of organising the business to help bridge the different cultures through negotiation, and explore new best practice solutions.
- Do stay positive, and display confidence in the merger in front of clients and staff.
- Don’t rush it, but also don’t let the process get too drawn out. Don’t be afraid to walk away. In the majority of cases, several meetings among the business owners and lawyers will be essential to figure out all the details.
- Don’t merge if the benefits are one-sided or if either side is going to be disgruntled. Address inequalities early in the negotiation.
- Don’t let third parties push you too hard to finalise the merger just to earn their fee.
- It is of critical importance that employees don’t learn about the merger from other sources—let them know early on, keep them updated and give them plenty of opportunity to ask questions.
- Don’t take it personally if some staff leave, as often a few people will leave after a merger. They may have been looking for a reason to go, and the merger was the trigger. See it as part of the merger process, and be prepared.
- Don’t expect productivity to rise immediately; in fact, expect it to drop off a little. Set short-term milestones to achieve.
- Don’t force staff to interact, but do plan a variety of different ways for the groups to get to know each other.
Have I put you off the idea? Growth of any type usually isn’t easy. Giving up full control can be hard, but with patience and persistence, the benefits to both parties are tremendous. Planning is essential; follow a defined plan. The process should be discussed, agreed and reviewed as it progresses.
Have you got any war stories or tips for others? Please share them.