"There is no such thing as a true merger – it always ends up with one business taking over the other."
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Myles Hamilton
M&A Expert, Shaw & Co

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Planning a merger may seem daunting if you haven't been through the process before. Here are some key considerations if you are thinking about merging with another business:

1 - Who will be in charge?

The merger of two companies requires the integration of their senior management teams. But who will end up running the enlarged business? The oft-used saying is that there is no such thing as a true merger – it always ends up with one business taking over the other. Therefore, a key question to consider is who will hold the balance of power – you or your opposite number?

2 - Where is your exit?

Unlike a trade sale, where you will exit your shareholding either at completion (or over a year or two in the case of an earn-out), and take your hard-earned money, a merger will usually see you continuing to hold most of your value in shares in the enlarged business. As it is likely you will have less control, and greater restrictions, concerning when and how you can sell these shares, what will be the exit strategy for shareholders in the enlarged business?

A good merger may also open a route to exit such as an IPO - and a higher valuation - so this may be part of the rationale for doing it. Also, you may be able to take a significant amount of capital out of the business at the time of the merger to compensate for a loss of control in respect of selling the rest of your shares.

3 - Is all your business relevant to the merger?

It may be that your business has operations or assets that aren’t central to the ongoing strategy of the enlarged business. If this is the case then you might be able to carve them out of the merger deal, and either split them out into a separate entity that you continue to own or sell them off. A good example would be property where you could sell this into your pension and set up a lease with your business.

4 - Getting the best merger ratio

You need an experienced corporate finance advisor to fight your corner and get you the largest possible share of the enlarged business. This is known as the 'merger ratio' and each of the companies that are merging will want to maximise their own interest.

5 - What will be the impact on employees and customers?

A good communications strategy is key to protecting value and explaining to stakeholders such as employees and customers that the merger is a positive outcome for them. Employees will be concerned about their jobs and customers about a change to the service they have been enjoying and the price they are paying. Setting out the benefits of the merger for key stakeholders at the right time will protect value and help make it a success. Getting this communications plan in place early is also advised in case of a leak which may force you to act sooner than planned.

6 - Branding and marketing

It is important to consider whether the merged entity will have a completely new brand or whether it will choose the brand of one of the merging companies while discarding the other. If the merger will require a rebrand then don’t underestimate the cost of new brochures, websites, logos, slogans and the like.

We work with owner managers of UK SMEs that are looking to fully or partially exit the business they’ve grown. Our value lies in helping clients assess their readiness to exit, finding the right buyers willing to pay the right price and managing the sale process whilst minimising associated risks. For a confidential, independent, no obligation discussion on how to sell a business, click the 'Let's chat' button.