There are many reasons and benefits for wanting to merge with or acquire a business, such as wanting to bring in additional skilled and quality staff or to eliminate a rival firm and take over all their customers in one fell swoop.
For many firms, a merger or acquisition is a good way to grow and allows you to move into a new geographic area easily or reduce supplier costs through economies of scale. Or, alternatively, it could simply be to reduce your competition and cut down on your costs and overheads.
But the integration of any new business can be very difficult for the staff and needs to be handled with care and, whatever the reasons for entering into any merger deal, you should not make the decision lightly. Any decision will affect the long-term future success of the business so perhaps the most important issue to consider is whether your business is really ready for those changes.
One of the most important aspects of deciding whether to buy a rival company is assessing the particular organisation you are targeting. There are two important groups to approach to find out about the business: customers and suppliers. When talking to these groups, it is important to ask about the company’s products or services and how these differ from your own. It’s also important to ask about the customer base, and identify whether there are any long-term regular customers you will inherit.
This will provide you with the basic background information you need but it is also essential you enter into talks with the target firm itself. As with any business, you will need to understand the finances, trends in sales and profit margins, and future forecasts. It is also essential that you assess any debts and investments. Only then will you will be able to get a more rounded and holistic view of the business and find out just how well it is really doing.
When researching any business, however, you must be careful not to contravene the Data Protection Act (DPA). This applies to anyone holding information about living individuals in electronic or paper format and can cover appraisal forms and data about sexuality, race, religion and criminal records that relate to an individual.
When researching the target business without permission, you should confine the information-gathering to generic data that does not refer to individuals. However, if you do have consent of the target business you will have more freedom, but they will still need the data subject’s consent for the information to be passed on.
Get your own house in order
But it is not only the target business you need to assess. It is also your own company and this
should include any external factors, especially the impact of the wider economic climate on any potential deal.
It is important that you understand your company and assess any external factors, especially the impact of the economic climate on any potential deal. Planning is also vital, and your business plan must reflect both what you are hoping to gain and how you plan to access the necessary funds to go through with any deal.
Yet with any merger or acquisition, one of the biggest tests you will face is the integration of your workforce with that of the business you take over. This can be often overlooked as an issue, but it should not be underestimated. Any merger or acquisition will probably mean you will have to make some staff cuts or changes.
To ensure that a merger or acquisition goes smoothly, it is important your staff and the target business are protected from uncertainty and involved in the process. To help prepare this before the merger or acquisition, consider how you can keep your key staff informed. Internal communications are very important but remember that some information may need to stay confidential.
There is always a danger in any merger or acquisition that you will lose key staff who are vital for a smooth transition. By bringing in incentives and involving these staff in due diligence, you will help to make these members of staff feel part of the process.
Similarly, while you are negotiating the terms of any merger or acquisition, your own time will become even more valuable. By delegating some of your own responsibilities, you can free your time and it will also help you to better understand your employees’ abilities and skills levels.
It is also important that you check what legal obligations you may have. Under the Information and Consultation of Employees (ICE) Regulations, you may be required to inform and consult employees on certain aspects of the merger. As of April 2005, it has been a requirement for businesses with over 150 employees to agree a procedure for informing and consulting employees if more than 10% request such a system. From April 2008, these regulations will apply to businesses with 50 or more employees.
Double trouble
The main secret to success for any merger or acquisition is planning ahead, gaining an understanding of the staff issues in the new business and working out how you are going to integrate the two workforces. There will be key posts that will need to be filled either with staff from your own business or from the target company, and in all probability you will need to take some pretty unpleasant decisions about making certain employees redundant, as you won’t need two people for every position. You will be able to assess your needs better by understanding the skills gaps that exist within the workforce and planning how to fill these.
On a more positive note, you will need to plan ways for the two workforces to develop working relationships and share knowledge. Holding regular social events and providing an internal newsletter are some of the ways to achieve this. Introducing uniform policies and procedures for the combined business will also help to make staff feel integrated.
It is important to get expert advice to help with staff issues such as new employee terms including any pensions provisions), changes in employment contracts and your responsibilities in terms of employee rights after a merger or acquisition.
Buying another business is one possible route to expanding your reach and taking your company to the next level. But anyone who thinks they can do it without some serious evaluation of both the company in question and their own firm, as well as their plans for the future, is in danger of turning what could be a profitable acquisition into a millstone round their neck. So make sure you do your research, bide your time and don’t pay over the odds.
Andy Poulton is a business adviser for Business Link Berkshire & Wiltshire
