Posted by: Victoria Nestor
The last five years have placed incredible pressure on SME owners. Those who have survived have done so by cutting costs, downsizing and becoming more efficient. The challenge now is position your business for the upturn, which requires investment from whatever working capital is available.
The traditional sources of funding are still difficult to access for many businesses. The banks will only lend to certain businesses, and personal and family savings have dwindled. Other funding sources such as Angel Investors and Crowd Funding are available, but perhaps to a limited number.
Another source of finance is by way of merger of a similar or complimentary business. By combining two businesses, it can lead to economies of scale and cost reductions, which can ensure the future survival of the business and preserve any remaining value for all of the shareholders.
This option is often overlooked by business owners, but it does offer a number of advantages if managed correctly:
It can be done on a very limited budget.
It can be done quickly if structured correctly.
It may allow for further ongoing cost savings, by implementing the best systems and processes of both businesses.
By having greater scale, it may allow you to enhance your business profile and offering to attract new customers (e.g. selling complimentary products to existing customers).
However, for a merger to be successful, there are a number of important issues which need to be considered, some of which are outlined below:
Who will be in charge after the merger? Generally, there is seen to be a winner and a loser. While this is not always the case, if you are the smaller party, then you need to be prepared to relinquish some control.
Will you retain all of your existing customers, after the merger? For example, if you are merging with a direct competitor, how will your customers react? Are there any historical issues with them to consider?
What brand or business name do you use? Is one preferred over the other, are the old ones amalgamated, or is there a new name for the new entity? A merger can be a great PR opportunity, so don’t waste it.
What is the best legal structure to use? Generally, both of the old structures will be wound down, and a new company/ partnership will be formed.
Another key issue to consider is the cultural fit, not just of the directors and management team, but also of the staff themselves. For example, if merging a regionally based Leinster business with
a Dublin based business, how will the staff interact? If all activities are brought under one roof, some staff will be asked to commute further than before. They may also be from city and country backgrounds, with different interests and perhaps different age profiles. Finding the right fit during the prospecting process is therefore important. A site visit is a critical part of the process, and can be done in a confidential manner.
There are a number of Employment law issues to consider, such as TUPE and continuity of service, and if redundancies or role changes are required, how these might be managed. Generally, all staff will need to put on the same terms and conditions, over a short period of time. It is important to take HR and legal advice on this.
There are other legal issues to consider, for example, if transferring a lease to a new entity, or seeking to surrender a lease if moving premises. This may particularly be an issue if personal guarantees were put in place, as these may now have to reviewed and modified. Your solicitor or property adviser can assist you with this.
The issues to consider may differ from case to case. The important thing is to be aware of them, and to consider them as early as possible in the process. This will mean that time is not wasted on unsuitable partners and you will negotiate the best deal possible for you. If these can be overcome, then all parties will benefit and the merger can succeed.
One final thought. Once the deal is announced, there will be a lot of staff, customer and supplier interactions required. It is important to be available to deal with these, and to expect some resistance. The successful mergers are the ones which don’t just focus on the required cost savings, but also bring these stakeholders with them from the start, by being frank, open and transparent.
If you would like to discuss merger opportunities, please contact me at the details below.
phone: 01 960 2260
mobile: 086 3835138