Business radar

There has been more merger activity among firms in recent times than most can remember. Whether for “needs must” reasons, “strategic advantage” drivers or even the arrival of an unexpected but interesting opportunity, the prospect of a merger needs to be assessed using a combination of caution, open-mindedness and creative intuition.

Why bother with all this merger mania?

Sadly, for some firms, because of the demise of their existing model within the new legal paradigm, the departure of key revenue generators, or maybe just as a result of a weak cash collection process over many years, which finally impacts on their banking relationship, there will not be many options available for amalgamation; desperation or “hands being forced” means that the first suitor with a strong enough balance sheet may be welcomed with open arms and the view is taken that at least part of the current business will be able to carry on.

However, for the luckier (or maybe more skilful) businesses, the potential benefits from a merger or other alliance can be assessed from a much more strategic viewpoint. The compulsion to look closely at such opportunities that may arise, is driven more by a desire to shape or shift the business into a place that will generate greater success, allied with a parallel fear that missing out on the current “party” may end up being viewed, in retrospect, as a trick that was missed.

Isn’t it fairly easy to figure out the benefits of a potential merger?

At a simplistic level, it probably is straightforward. Ask yourself – will there be synergies from the combined business? Can we cross sell services? Are there specific problems or challenges that can be solved by the two businesses coming together? Will it add value or save costs? Can we, together, attract better quality business? Will the combined business be able to afford better marketing and technology investment, which leads to greater profits? The answers to these questions may well be conclusive in making your decision either to explore matters further or walk away.

However, a deeper assessment of where the venture may take you, and a more creative approach to your potential future vision, may colour your view of a specific proposal and could even unearth opportunities elsewhere that would otherwise be missed.

First of all, try to imagine the first few months following merger, and in particular the impact on the key personalities and separate cultures that are involved. Will it be like two atoms colliding, creating a load of friction energy, with many splintered particles (including clients) heading off in all directions? If expectations on strategy and culture cannot be matched extremely well beforehand, this could be the disastrous result. If, on the other hand, the short term vision you can see is one of co-operation, aligned strategic goals and a happy team working well together, this has much more hope for success.

Secondly, it is worth trying to be creative and thinking out of the box about the kind of merger situation that could work well, for example:

We are a Scots firm but have a London office – maybe a merger with a Home Counties practice who always wanted a foothold in the city is worth exploring? Both firms would therefore broaden their footprint, in a slightly unexpected way.

Can we leverage our highly respected and charismatic senior partner, whose leadership skills we have maybe taken for granted over the years but whose strengths would actually be envied by an otherwise first class merger partner which currently lacks such a figurehead?

Is there a firm out there with a stronger brand and reputation than ourselves (more established perhaps), but who are maybe concerned that their current performance is not matching their historic achievements? Could we therefore instigate what the corporate world would see as a “reverse takeover”, to combine our superior skills with their better brand name going forward?

If the creative juices aren’t flowing particularly well, sometimes the view of an external consultant can unearth things you can’t see, or bring fresh ideas to the table.

What is the best way to deal with an unexpected approach from another firm?

First, don’t consider this a threat or somehow an implication that you are vulnerable. In fact it should be viewed as a positive development in today’s climate and you should always be open for conceptual discussions. But time is precious and it’s better to quickly establish whether or not this is likely to lead to anything, therefore assessing the culture of the other firm is probably the first big step – if they don’t speak your language, say thanks and move on.

Other early discussion hurdles include agreeing a name for the enlarged firm, outline compensation arrangements and the optimal strategy for the combined entity going forward. Again, if discussions are not going well on these matters, don’t hang about for long. However, if common ground can be found fairly quickly in these key areas, it’s probably time to get the sleeves rolled up, pour the coffee and start talking detail – this is a serious opportunity for your business!