There are many benefits that one organization can obtain from merging with another business. The combined entity created through the merger may have a bigger market share. Access to specific premises, intellectual property and talent can also make a merger beneficial for a business.
However, much can go wrong between the early stages of negotiating a merger and the actual integration of the two companies into one combined organization. If a merger fails, the companies involved in the transaction may be at risk of significant financial setbacks or even insolvency. Leaders, therefore, need to proceed carefully and make every reasonable attempt to identify complications before they impact the transaction.
What issues might arise and prevent a merger from proceeding smoothly?
Antitrust concerns
Perhaps the merger might allow two businesses to completely dominate the local market. Perhaps both businesses operate in an economic niche already dominated by a few power players. In scenarios where a merger might unfairly prevent competition and negatively impact the market, state or federal regulators might intervene to prevent the merger from occurring.
Unexpected liability
Either party preparing for a merger might need to cancel the transaction if it proves unfavorable. The due diligence process of preparing for a merger often entails a thorough review of company finances and operating practices. Financial obligations and lawsuits can render a newly-merged business insolvent. If one business uncovers a pending lawsuit or other sources of substantial liability that may pass to the resulting merged business, they may choose to cancel the merger despite the challenges of doing so.
Cultural clashes
In some cases, both companies are legally and financially eligible for a merger. Still, leadership at either business may ultimately determine that the cultures within the company are too different for the merger to succeed. Integrating teams and working cooperatively can become prohibitively difficult if the companies have vastly different daily workflows and cultural practices. Companies may need to plan carefully if they want to overcome different work cultures and create a successful merged business.
Business leaders may need help performing their due diligence before a merger and crafting appropriate legal documents for every stage of the transaction, and that’s okay. Given how much companies may invest in researching and preparing for a merger, it is crucial to identify factors that could complicate the transaction as early as possible. Integrating appropriate terms into merger documents can help protect both organizations regardless of whether the transaction is successful or it ultimately fails.