Factors affecting Mergers

Mergers are very common in the corporate world and may involve companies from the financial sector, manufacturing, service provision including legal services, consultancies, etc. The major reasons for merging a company are to achieve rapid growth, to acquire an existing market share, to save time and costs, to achieve brand popularity etc. The excellent results from a merger, may be counterbalanced by some unfavorable effects on your company.

You must consider the following factors while merging and ensuring the merger is successful:

Strategic Fit: There must be an excellent strategic fit and perfect synergy between both companies.

Goodwill: Investigate the reputation of the company in the market. This may involve analysing information from rating agencies or credit rating agencies, customer surveys, current share price or fluctuation in the company’s share price if it is a public limited company. Unfavorable goodwill will jeopardize your company’s goodwill as well so this is the most important factor to consider while merging a company.

Your company’s Name: Is the target company allowing you to change the name of the company or not? You may want to run that company under your brand name.

Customer reviews: What are customer reviews about that company? Are they happy with the company’s products and services and do they refer others to the company? This investigation requires enquiries from customers or customer questionnaires.

Rules & Regulations: After a merger, you may want to implement your company’s rules & regulations and policies across the entire company. Is there a likelihood of resistance from their employees? Are you able to manage change and overcome resistance?

Training & Development: Are they skilled enough to work under the quality levels your company requires or is there any need for training and development. Are you able to afford the training and development costs?  Will the new staff be passing to skills to your staff, and how will this be managed?

Stakeholders: What will be the stakeholders’ response to this merger? Is this merger affecting the largest stakeholders and will they take any action to prevent the merger?

Risk: Consider the risks involved in the merger, for example, if this merger fails what will be the consequences?

Strengths: Consider the strengths of the target company, for example, favorable goodwill, availability of working capital, low long-term debts, capable man power etc. Does the target company have strengths to add value?

Weaknesses: What are the weaknesses of the target company, for example, incompetent labor, high short/long term debts, and are you able to overcome those weaknesses?

Threats: Is there any threat to that company, for example, a potential litigation etc.

Short and long term debts: Analyze the short and long term debts of the company. High short term debts can result in liquidity issues and high long term debts can result in company closure if not paid.

Calculate the ROCE ratio of the company: By calculating the ROCE (Return on capital employed), you will be able to analyze whether the company has the potential to give reasonable returns against the capital employed.

GlobalKap’s Virtual Deal Rooms : provide professional help in all merger transactions. Virtual data rooms automatically audits the prospective company from different areas, for example, operational audit, financial audit, internal & external audit, managerial audit, considers all the factors mentioned above etc and gives final recommendations that is it beneficial to merge the target company or not.

In a nut shell, Virtual data rooms are a one stop solution for any merger transaction.