A merger occurs when 2 or more companies unite to form a larger entity resulting in synergies (1 plus 1 equals 3 or more). Usually the motivation for a merger is to scale-up, however sometimes the goal may be for an owner to exit, or at a minimum take some cash off the table.
The terms of a merger demand professional expertise and scrutiny; how much equity, cash or debt you take as compensation, as well as who controls what?
Note that in most mergers, one party ends up dominating the other, no matter what the original intent.
- A successful merger (where one plus one is greater than two) can enable a stronger end-game for both parties in the medium to longer term; provided, both parties have an exit on their respective radars.
- It is not easy to find the perfect merge partner, where one plus one equals three, and where you can negotiate terms and conditions that meet your objectives.
- Few mergers end up a partnership of equals. At some point a merger starts to look like an outright trade sale and one partner controls the merged entity. Exiting from a minority position can be far more challenging than exiting from a majority position. This is where a Buy-Sell Agreement or a Put Option can protect your minority position.
Important – The choice of transition strategy requires careful consideration of the consequences and trade-offs involved. We devote a lot of time with clients in choosing the smartest transition decision, that is aligned with individual circumstances.