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How To Merge Two Companies

Merging small businesses can be very beneficial to both sides of the merger. If you merge your small business with another company, you'll encounter a new set of legal concerns with your new consolidation.

Read on to learn some key points for business owners to consider before a merger and understand how to merge two companies.

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What Is a Merger?

A merger is not an acquisition. Mergers & acquisitions are often one department in some markets, so it's easy to confuse the two. Acquisitions are where one company is taken over by another company.

A merger occurs when two or more companies join to form one new or existing business. Both entrepreneurs benefit and typically continue in the business. The final structure and details vary from agreement to agreement. From a financial standpoint, the two companies generally combine their assets and liabilities to improve their overall financial picture. This usually helps increase the overall business valuation.

What To Look for in a Company When Merging

Before agreeing to a merger, look into the other company's financial, legal, and operational health. It can seem tedious, but you have to do your due diligence.

Consider the following critical factors and information you'll probably have to provide to the other company:

  • Copies of balance sheets, tax returns, and accounting records
  • Company's valuation
  • List of assets
  • Operating costs
  • List of existing customer base
  • List and valuation of any real estate the company owns or has an interest in
  • List of employees and employee benefits
  • Information about any pending lawsuits against the company
  • Locations where the company is authorized to do business
  • Copies of the acquiring company's articles of incorporation and bylaws, if applicable

While this is not a complete list, it will help you evaluate whether to continue with a small business merger.

Issues To Negotiate When Merging Companies

Suppose you decide to pursue a merger with another company. In that case, many issues will be considered and negotiated during the process.

  • What will your legal structure look like once you join forces?
  • How will you combine your boards of directors, executive officers, and others in management?
  • Will the merger create redundancies such that certain employees or departments must be let go?
  • What will the new company's name be? You may choose a new name altogether, keep the name of only one of the companies, or combine the two names into one (for example, when the Thomson Corporation and the Reuters Group became Thomson Reuters).
  • What are the reasons for terminating or ending the merger?
  • What is the valuation price for each business?
  • How will the merger be funded?

You may also need to consider how you'll combine stock options since one company's stock is probably worth more than the other's.

Types of Mergers

There are a few forms of small business mergers. Pick the one that best suits your own small business merger's needs.

  • Conglomerate mergers occur when two companies from different industries merge. An example of a conglomerate merger is when the online site Amazon merged with grocery store Whole Foods.
  • Horizontal mergers occur when two businesses in the same industry combine. An example of a horizontal merger is Disney and Pixar combining forces. Both create animated movies.
  • Vertical mergers occur when two businesses with different supply chains merge to provide a common service. An example was when eBay and PayPal merged. eBay provides the supply chain for selling products, and PayPal is the chain that allows payments for the products.

An alternative to a merger is forming a new business entity, with each company being a partner. This requires a new employer identification number (EIN), legal structure, and tax returns.

Post-Merger Steps

You've finished your company merger. Now you have a combined company. You have a few steps left before you can comfortably move forward:

  • Restructuring corporate organizational chart and positions
  • Press release to announce the merger
  • Social media announcements
  • New domain or website

You could also hire a merger company to do this for you.

Merger Professionals Who Know How To Merge Two Companies

A merger is a demanding operation with many moving parts. Thankfully, many merger professionals handle these types of transactions for a living. One such professional is the intermediary, who can represent you during the process. They can help structure and negotiate the final merger agreement.

Mergers also have many legal ramifications. When completing a merger, you often must consider securities, antitrust, and tax laws, as well as other applicable state and federal laws. An experienced attorney can help ensure that you comply with the regulations crucial to your situation. Some attorneys even focus solely on mergers and acquisitions.

Start the Merger Process by Contacting an Experienced Attorney

Even though companies merge daily, the process is laborious and complicated. While the final merger can produce a stronger, more efficient, and more productive company, many financial, legal, and structural aspects must be evaluated and negotiated for the process to go as smoothly as possible. Get experienced advice by contacting a local mergers and acquisitions attorney who can merge two companies like yours.

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