subject: Due Diligence Essential To A Successful Merger [print this page] In any corporate merger there is a great deal of anxiety. There are many factors that must be considered in the process of merging two companies, and mergers and acquisitions are often complicated by the fact that the companies merging may have been competitors in the past. There are many questions that a corporate executive must ask themselves when seeking to merge with or purchase ownership in an unfamiliar company. What is this company's virtues and its liabilities? What is its corporate culture? Does it share a common vision with this company? What does it bring to the table in terms of human capital or experience? What it is material worth and debt situation? Does it have financial, tax, or regulatory concerns? Failure to consider these questions can have grave consequences for both parties.
A merger & acquisition provides a period of time before anything is signed or any structure is agreed upon. This is the time for both parties to seek out the answers to these nagging questions. A seller may find through a CFO diligently examining the books of the buyer that the amount of capital that is offered to close the deal will leave the gaining company unable to meet their debt obligations, or even that the promised capital does not exist at all. A buyer may find that the company has hidden liabilities that are not public knowledge and were not considered in the decision to purchase the company, such deep insolvency or offshore interests in nations that are unstable or dangerous. Knowledge of these challenges can not only affect the purchasing decision but also allow the companies to plan for difficulties that may occur if the merger is completed.
Although financial and business considerations are of prime importance, it can also be very important to consider the corporate culture of the two separate entities and how they will coexist after the merger. A West Coast software company composed mostly of younger workers that take breaks to play basketball during lulls in a work day that may extend well into the evening may be at odds with a storied East Coast media syndicate. This company's older workforce may be more concerned with producing content during a hectic nine to five work day, eating lunch at their desk. Similarly, values must be taken into consideration as the media company may see itself with a higher calling and a responsibility to inform the public, whereas the software company is more concerned with automating access to information for maximum profit.
The corporate road is littered with the wreckage of many disastrous attempts to merge incompatible companies, leading to plunging stock valuations and broken business models. The most sure way to avoid becoming the next failed merger experiment is for both parties to perform due diligence of their future partners.
