Follow These Strategies for Choosing a Merger Partner

Mergers, acquisitions and alliances can help your business increase its market share, which can give a boost to the organic growth realized. But a lot can go wrong during and after merger, so it’s essential to start off on the right foot to improve the chances of success. One of the most critical decisions you will make is to identify a suitable merger partner. partners for M&A

If you are considering an acquisition or merger, here are a few suggestions to take into account when selecting a suitable partner:

1. Avoid Power Struggles
While there is no fool-proof way of ensuring there will be no power struggles among upper managers, you will do well to avoid situations where both CEOs are under age 55 and/or neither has indicated they wish to move on. In the best situations, one CEO is ready for retirement or other transition, and the other is younger and capable of taking over the helm of the newly formed organization.

In addition to senior management, take a close look at the board of directors of both organizations. Is the board of the target entity in favor of alliance or are they likely to stay entrenched, leading to a struggle that ultimately leads to merger failure. If the latter is likely, you may be able to work with the CEO to seek necessary changes in the board over the next few years so that ultimately there is an environment conducive to successful merger.

2. Prepare for Culture Clashes
No matter how many times experts caution business owners about culture clashes, the issue continues to take a backseat to other concerns before and during the merger process. But it’s important to ask if the two organizations have compatible cultures. Look at the histories and consider whether both are progressive or one tends to drag its feet when it comes to implementing change. Do they both have a history of embracing new technology? Consider whether the target company empowers its employees. These are only a few of the many culture considerations you should be asking about your potential ally.

Changing culture is probably one of the most difficult undertakings in business, but also one of the most often underestimated. It is a difficult, if not impossible, task and will require enormous amounts of time and energy to engage employees in embracing a new and different culture. Even with all the added effort, culture differences are often the downfall of otherwise successful mergers.

3. Be Aware of Perceptions
Overlooked almost as often as differences in culture is an analysis of the target company’s standing in the marketplace. It’s important to examine a company’s performance to determine if it has been a leader in its market niche or just another player. Consider its reputation with both customers and peers. Has it been growing marketshare? It’s also critical to consider whether the target company’s business model is sustainable post-merger. A potential merger partner that brings along baggage of a bad industry reputation or stagnant market performance should raise a red flag to avoid an alliance, and either go it alone or find a more promising partner.

4. Seek Synergy
Merger should bring opportunity for synergism. If your business can use its referrals to expand the revenue of the target company, for example, there is an identifiable win-win. Look for ways to eliminate duplication of equipment, technology, facilities and personnel for potential cost savings. Overall, you should be able to point to obvious economies of scale and benefits stemming from combined resources when considering merger with a particular partner.

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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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