Business Merging Or Purging? Surviving the current Covid environment and staying in business
Merging in business with a competitor or a company in a related sector may be the way to go in the current climate and can make sense for a number of reasons.
Many small and medium-sized businesses are facing huge financial challenges as a result of the pandemic and the pausing of much economic activity. Sadly, a large number of them will not survive and this will inevitably lead to job losses, financial hardship and disruption for many individuals and families.
The challenge is that most SMEs operate on very low cash reserves and can rarely continue beyond a few weeks or months, without regular income from customers. The question is how do you survive this hugely challenging period?
If you are a business owner who thinks they may not be able to continue trading, you face a stark future where shutting down the business and letting your staff go may seem inevitable. One option is to consider a merger with a competitor or company in a complimentary sector. This may never have been in your original plan when you set up the business, but it may be a way forward and actually provide a much brighter future.
Benefits of business merging
Merging with a competitor or a company in a related sector can make sense for a number of reasons:
- As a larger unit, you will have greater financial stability in terms of revenue, cash reserves and sheer size.
- Overheads such as accounting, sales and marketing, HR and other function costs can be reduced, and systems made more efficient. For example, your competitor may have better IT systems and you may have a really strong sales function
- There will be opportunities for cross-selling products and services to each company’s customer base
- Having a single entity with one brand name gives you more awareness in the marketplace and often allows you to target larger contracts
However, a merger is still a major move and needs careful planning. Here are a few things to consider:
- Do the respective business owners get on and do they bring different skills and expertise to the newly merged company?
- Agree on shareholdings so that all parties feel they are getting a fair share of the new entity and will benefit accordingly.
- What are the personal objectives of the respective business owners? In some instances, the two owners may be of different ages and one may be looking to exit the business in a few years leaving the other to continue building the organisation.
- Have both parties done their due diligence in terms of looking at financial records, customer contracts and staff roles? Don’t store up problems for the business down the line.
- Does this merger make sense from a strategic perspective? Will the new company be a stronger force, and can it survive the economic challenges that we now face and go on to be successful?
Mergers are not always straightforward but in the current climate, they could be a really good way to survive and go on to thrive!
Expert Advice on business merging
Corporate Counsel advises SMEs on business mergers and acquisitions.
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