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Is a merger a wise step for my business?

On Behalf of | Nov 8, 2023 | Business Law

In New York, running a business is a daily grind whether it is a small, medium-sized or large business. It is imperative to stay one step ahead of the competition and understand when certain decisions are necessary to move forward and advance. Part of that is deciding when it might be wise to merge with another company.

Mergers are frequently discussed in the news. People tend to associate it with massive corporations that are joining forces. However, smaller businesses can also merge with a competitor. Knowing if a merger is a good idea involves understanding the facts.

Know the facts about mergers

When considering a merger, it is important to get all the facts about the other business. Jumping into an agreement without understanding the other business’s assets, debts, value and underlying concerns can lead to unforeseen problems. Getting the business appraised is a useful decision. The agreement to merge must be in writing. The inventories need to be listed with the owners and investors identified.

Mergers differ from acquisitions in that they are done on a voluntary basis. The sides have determined that rather than compete against one another, pooling their resources can benefit everyone involved – including customers. If, for example, two delivery businesses see that they are eating into each other’s profits, they might think it is preferable to combine and grow.

The business itself is critical when deciding the category of merger. For example, a horizontal merger involves two companies that are essentially on equal footing with similar market shares. A market extension merger would involve two businesses that are selling similar products but are not in the same market. This type of merger would expand their reach.

A merger might seem like a good idea when it is broached. But when it is heavily scrutinized, the company discovers that it would not benefit them. In some instances, it could do more harm than good financially and with efficiency. There is also the matter of dealing with outsiders who could operate differently and lack cohesion.

In other cases, it can help everyone to merge with another company. For a full grasp on whether to pursue a merger, understanding business law, its positives and drawbacks is imperative.