Should I Consider or Accept a Merger Offer ?

In the current economic environment many firms are either proposing, or receiving offers to merge with what may have been competitors or firms in a similar industry.

Do mergers make sense? In many cases they can be a great way to affect a positive turnaround for a firm that has been experience difficulties. It's often a case of simple arithmetic, not high finance: Cost and operating savings make sense! Business owners know that in a merger you don't need two finance departments, two admin departments, two plants, etc.

History probably tells us that the more successful mergers are when two firms have relatively equal footing. The minnow swallowing the whale, or visa versa in business in generally not a good thing. In certain cases both firms could actually be doing only marginally well and the synergies they obtain can make them rise to a higher level of success in their industry. The business owner needs only to ask himself simple question - Do I want to own 100% of money losing marginal operation, or 50% of a successful profitable firm. We'll pick number two any day!

Probably the best way to look at a merger is more of a partnership. One firm dominating the other or having their culture influence the other is not advisable.

What are some reasons for contemplating such a major business decision? There are several. In many cases methods of distribution of sales can be improved, adding profits to the bottom line. One of the firms may have a stronger level of expertise in certain key areas of the business. Banks and other lenders might look more favorably on the combined entity, particularly if the new unit has better financial results!

Another obvious consideration is the issue of sheer size. Two smaller or medium sized firms might now be able to, when combined, take on a larger firm in their market.

When two firms merge that has to be some financial logic applied to the new ownership of the company. The bottom line is that the new valuation has to make sense from the point of view of who contributed what.

Many customers at a certain point in time find them up against the proverbial ‘wall ‘. They can't get the financing they need, there are production or distribution issues, and the overall marker or economy might be particularly tough for their particular industry.

A merger is a much legitimized way of allowing a company to continue to prosper.

Business owners who do not want to take the entire plunge of a real legal merger can also consider a partnership arrangement with another firm. More often than not this is structured around a joint venture - We see more and more Joint Venture press releases every day. There is a nifty term called ‘ co - opetition ‘ and more and more firms are realizing that they can keep their own company in tact, not take on total risk in new ventures, but can actually share risk and rewards with a suitable partner firm .

The bottom line is that a merger or joint venture can be a solid opportunity to lower costs and increase sales and market share.