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Proper Prior Preparation for a Corporate Merger

12 Feb Proper Prior Preparation for a Corporate Merger

While the merger process typically steals all the focus, the often-neglected pre-merger phase can have major impact on later success. Improve your chances of merger success by following a few guidelines to prepare in advance for merger.

A merger is seldom smooth sailing and involves often-difficult decisions, beginning with identification of the best merger partner. There needs to be enough potential for synergy to make merger worthwhile. This means enough valid advantages to retain employees as well as loyal customers. A company may appear on the surface to be the perfect merger partner, but closer examination may uncover challenges likely to lead to merger failure.

Define clear objectives
Merger success often hinges on having a clear objective in mind at the time of acquisition. That includes a well-thought-out strategy as well as carefully formulated commitment of the target organization. A company may unexpectedly come up for sale during your search, but it is important to identify a good strategic reason for the acquisition beyond it being “a really good deal.” A strategy assures your search stays on track and provides a clear picture of an ideal merger and acquisition partner. Every potential candidate for merger should be held up against this defined strategy and matched to the profile fitting your organization.

Begin valuation
The pre-merger phase is the point at which you should develop a deep understanding of all operational, financial, legal, tax and cultural issues and how they can impact the merger process as well as the newly merged entity. This process is important to truly assess the value and potential fit of prospective target companies, but also helps you develop a more objective view of what your company brings to the table. These valuation skills will serve you well during negotiations for a favorable deal.

Prepare a post-merger plan
Long before the merger is finalized, you should have a post-merger business plan in place. A surprising number of organizations that give attention to developing a plan for launch and a plan for merger, gloss over the steps of developing a sound business plan for the post-merger atmosphere. This is a step best taken very early in the merger process and not left to the point at which it should be ready for implementation.

Being by preparing a general business strategy for the first 100 days post-merger. Address matters such as management roles and appointments, communications to stakeholders, employee retention and customer satisfaction.

Address uncertainty
Open communication with stakeholders is essential early on, but expect that this sort of transparency will ignite employee concerns over job stability and other uncertainties, particularly in departments where there is likely to be staff overlap. These challenges are difficult to avoid and organizations that have tried to do so by keeping employees in the dark until absolutely necessary generally find challenges magnified rather than minimized.

With the realization that employees and customers are your company’s most valuable assets, and the expectation that interaction between staff and customers can cause further complications, devise a strategy specifically targeting communications to these critical groups and plan to deliver even bad news in a straightforward manner. Employees and customers alike will often have a stronger negative reaction to the unknown than they will to known facts, even if they do not favor the results.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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