Merging two companies is anything but easy. It involves paying attention to many details, and if you miss any integral steps, it can affect the merger negatively. From conducting M&A due diligence to weighing and analyzing the cultures of both companies, there’s a lot to consider.

It doesn’t matter if you are the CEO of a corporation or a small business owner, the rigorous details are similar. So here are seven factors to keep in mind when merging two companies.

when two companies merge

7 elements to include in your checklist 

To get the details right, you need to have a checklist to guide you through the process. Then, once you’ve checked off every item on your list, you can rest assured that you’ve covered every necessary aspect of the merger and closed up any loopholes.

1. Analyze Company structure for compatibility 

Before a merger is done and dusted, it’s important to consider the corporate structures of each company. In addition, both companies should analyze each other’s corporate structure to see how best they can collaborate in the wake of the merger. 

In most cases, there are two common scenarios:

  • If it’s a large corporation merging with a small, unincorporated business, the larger company will likely view the merger or structure as an acquisition and acquire all the assets of the other business.
  • If it’s two large corporations merging, the structure might be analyzed from a different angle. Both large corporations might choose to merge and form a new corporation while merging all individual assets and stock shares. This is more difficult as both companies already have rigid corporate structures in place. But with the right analysis, both companies can come to a consensus.

2. Compare and analyze work ethics and corporate culture 

When two companies merge, they blend corporate cultures. Often, there’s a clash of business philosophies which may jeopardize the progress of a new merger. However, a proper understanding of both cultures can predict with some certainty whether the potential merger will be successful. If the two organizations can’t find common ground, then there’s no point in moving forward with the merger.

Beverly Goulet, former executive vice president and chief integration officer at American Airlines, had this to say about the merging of corporate cultures:

“One thing I wish we had done was [to create] a culture diagnostic right at the start of our planning process. That would have eliminated some of the misperceptions about both company cultures. It would have established an objective set of criteria around which we could have had conversations based on facts rather than just anecdotes or beliefs.”

  • Key point. To understand how to merge two companies, you must first understand that the marriage won’t work if both ideologies and cultures are not in unison. One or both parties may have to compromise before any merger can be successful. This requires visiting the company often and interacting with staff and management to understand their core values and office ethos. 

3. Define the new leadership structure 

When all analyses that guarantee compatibility between both companies are done, the next important item to be checked off the merger list is the leadership structure. This is very essential because both companies are becoming one, so there can’t be two leaders, a new leader will have to be decided. If we are talking about small business mergers here, that’s a minor issue as the larger company naturally assumes leadership of the new body

However, when two large competitors are merging, it becomes a tougher call and thus, must be addressed first before any ink meets the paper. Now it isn’t just about unanimously agreeing on a new leader, the entire leadership structure must be deliberated, and an agreement reached before any merger is sealed. This structure can even include forming a new board of directors, among other structural positions. 

4. Structure a plan for new customers 

This is for corporations merging with smaller sole proprietorships that already have a customer base. You will be meeting the customers of your acquired business, and you need to draft out a plan to face these new human assets. Some of them might be opposed to the new idea and might want to opt-out. You need a strong, convincing power to keep them.

You need to assure them that the change in leadership and merger will in no way impede on their normal privileges enjoyed with the former company. You need to create a perfect plan to introduce yourself, your team, and any new policies to your new customers in a way that will alleviate their fears. 

5. Don’t forget due diligence

When two companies merge, assets and liabilities are inherited in an acquisition but shared in a merger. Whichever the case, conduct due diligence on the company you intend to merge with to determine its assets and liabilities. The process also involves determining the financial value or net worth of the potential merger so you can determine how the assets are to be shared. 

If you were to realize that you inherited more in liabilities than anticipated after the merger, you would have to bear the financial burden — reversing a merger is nearly impossible and most likely not worth the effort. Never leave due diligence to trust — it’s simply not good business. Whether it’s a small business merging with a large corporation or vice versa, due diligence is imperative to understand the nature of the new deal.

6. Deliberate on branding 

Pay attention here — this is very important! Each company comes to the table with an image and a brand. There’s always a reputation at stake here. One is at the risk of fading away, so it requires proper deliberation on how to incorporate two brand identities so that no one loses their reputation in the wake of the merger. You have to remember that a merger consumes years of commitment and hard work.

At the deliberation table, both brands can decide on how to reshape their identities to create a new brand image, decide on using one of the company’s brand identity, or fusing both brand images to form a new one.  Branding is everything when it comes to businesses, but struggling to maintain it in the aftermath of a merger sometimes might not be worth the trouble. If the new company stands to benefit from a new image, then each company should make amends for a greater good, this, of course, should be decided before the merger. 

7. Maintain integrity and transparency throughout the process 

While merging businesses, it’s essential that both parties are transparent throughout the process to avoid serious challenges in the post-merger business. If there are any company secrets, now is the time to come clean and inform the other party. Don’t try to bury ugly situations or conceal liabilities that due diligence may or may not discover with the hope that things will be fine in the long run. 

Be transparent and let integrity be your guide through the process of a merger or acquisition. 

Don’t also fail to inform staff of the transition because that’s the last thing you want to be surprising them with. Instead, inform all relevant stakeholders and investors of the new plan and show them everything. If you hide some information away from your internal staff and the potential merger, you set the tone for some trouble when that information is discovered in the long run. 

Conclusion

When merging companies, your head may be spinning, and it’s easy to forget some necessary factors that demand attention. A well-thought-out checklist will help you attend to each item to ensure nothing is missed. Whether it’s checking the compatibility of your new partner or deciding how to rebrand, each factor is important and should be checked off before signing on the dotted line.

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