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Mergers occur even in small businesses……………

Small business mergers are not a rare occurrence. In certain professions mergers offer some unique benefits. Before I go any further, let me describe a merger in plain words,” A merger is like a wedding.” You say yes and now you share everything with another person. The hope is for a long and successful future together, but just like in a wedding, things don’t always work out.

A merger is sought to create a larger firm with more resources (money and talent) and an ability to make a bigger impact on a target market. Mergers are usually a cashless transaction with many difficult “personal” issues that have to be overcome. For example, in a merger usually there is one company name retained, the other goes away. The owners have always made their own decisions on everything in their business lives; now it becomes a shared responsibility. There are financial issues that have to be addressed such as the equity each firm brings to the merger as well as compensation packages.

While I believe that some mergers are very beneficial to the participants, I usually recommend a “trial merger” which includes the development of a new strategic plan (both management and marketing). The full planning process includes a discussion on everything from operating systems, staffing, marketing, financial management and market opportunities and risks. Just as in a wedding, the partners have an engagement period during which they get to know each other. Before mergers occur, there is a need for an engagement period between the businesses contemplating a merger. Last but not least are the legal issues that have to be addressed during the engagement process.

The selection of a business partner for the purpose of a merger is not a short term effort. It requires getting involved in your industry and learning about your competition. Things like reputation, values and image with customers and community needs to be analyzed.

The worst time to do a merger is when you need to merge in order to survive. Every business owner should always be on the lookout for the possibilities of a merger (and I can add the word acquisition) regardless of the age or size of a business.

The old saying, “two heads are better than one”, can hold true in a business merger if each business brings complementary benefits to the table. Mergers and acquisitions are growth stimulators.

Big businesses grow through mergers and acquisitions, this is one lesson that small businesses need to pay attention to.              Nick J. Petra CFP

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