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3 challenges executives must address when planning a merger

On Behalf of | Jul 10, 2023 | Business-Employment

A merger can be an exciting opportunity for both of the companies involved. They can gain access to intellectual property, proprietary processes, new facilities and the best talent in the industry. They can also potentially expand their market share and company reach very quickly.

However, mergers are often fraught with risk for businesses as well, as things could very easily go wrong. When a merger fails, businesses may need to separate or may end up closing down altogether. Therefore, the executives negotiating and preparing for a merger will need to very carefully plan to minimize risk factors that could endanger the resulting combined organization.

Redundant costs

When two businesses combine into one, there may be a lot of unnecessary overhead expenses. From unnecessary rent to duplicate professional positions within the new organization, there may be numerous redundant costs that the business will need to address. Looking carefully at the resources and staff rosters for both businesses can help executives identify what costs they can eliminate after the merger to keep expenses for operating the company as low as possible.

Talent loss

Workers know that mergers can lead to layoffs and company failure, so at least some employees will begin looking for jobs elsewhere. Businesses seeking to combine with other companies often need to carefully look at human resources records to identify the best-performing professionals in different departments at both companies. Signing new employment contracts and offering retention bonuses are both ways of helping keep key workers at the new company after the merger.

Unanticipated liability

One of the most important aspects of a merger is due diligence on the part of both companies. The resulting combined organization will be liable for any product defect claims or discrimination lawsuits brought by customers or employees of either of the formerly separate companies. Without proper research, an organization may merge with another business only to end up partially responsible for that company’s prior failings.

Careful planning is a key component of any successful business transaction. Seeking legal guidance and addressing known challenges that tend to complicate many mergers early in the process can increase the chances of a successful merger.