There are a lot of benefits to agreeing on a company merger with another business, and this includes, but is not limited to, increased market share, savings on costs, and access to new expertise and technologies. There are, however, additional financial risks that can come from a company merger, too. This is why it is essential for those involved in the planning and execution of a merger to have a solid plan in place and a good grasp on the types of risks ahead. Knowing the risks can help reduce the chance of them coming to fruition, so to help you with this, we’ve listed a number of these possible risks so that you can factor them into your plans.
Integration Risks
It’s important to note that many mergers or acquisitions fail due to poor planning and leadership. However, that doesn’t detract from the fact that mergers can be a very logical and advantageous pursuit if done correctly. This first risk is likely the most obvious, but this is primarily due to how important this process is to get right. Integrating two companies is incredibly complex and can be very time-consuming. There are also a number of potential pitfalls along the way, which you’ll need to watch out for. Different company cultures, processes, and systems can lead to clashes between new and old team members,leading to delays and setbacks. Create a clear and easy-to-follow integration plan before you get underway to try to identify and mitigate possible risks before they become an issue.
Cultural Risks
As mentioned above, when integrating your company with another, there is a risk that the different company cultures between both will cause friction between teams. Those familiar with a much more relaxed environment might need help with a stricter working environment, and those that are used to more rules and regulations might not be used to a more casual way of working. It’s important that you consider a good compromise if both cultures don’t align with each other and find ways in which you can bring everyone together in a more unified manner. The chances are that you will create a brand-new company culture to accommodate everyone during the merger, which may take some time for people to get used to. Because of this, you should be patient while people acclimate to this new style of working to keep morale as high as possible.
Financial Risks
While a company merger is expected to be positive from a financial perspective, plenty of potential hidden costs could arise and catch you off guard if you’re not careful. This risk can include increased levels of debt, changes in the business’ credit scores, and liquidity risks. To mitigate these financial risks, there are a few things to consider. First, you could hire a talented accountant that is well-versed in how mergers and acquisitions play out. You could also get further training on the laws and economics of mergers via an online course, or you could even train your management team on this process. Ultimately, knowledge and experience will help significantly during this time, and it’s important to make considered and careful decisions as you go forward.
Reputational Risks
A merger can also impact your company’s reputation with both members of the public and your team. For team members, it can feel as though the company is at risk of bloating and becoming something too big. There is often the fear that, in cases like this, certain members of the team will begin to get forgotten about and fall by the wayside. This can lead to your team developing a poor opinion of your leadership, causing them to become demotivated and produce poor-quality work. You could also get a negative response from stakeholders in the company who might see the merger as too much of a risk, or they might not understand why it’s happening. Ultimately, you will need to ensure that everyone is as happy as possible with this process or risk these reputational damages, especially if things go wrong after the merger.
Legal Risks
Similar to the financial risks that your business might face, you will also have to be aware of the potential legal risks that can come with a merger. Many regulations surround mergers and acquisitions in the business world, and it’s imperative to abide by these rules wherever needed. You may also have to honour contracts that were already put in place with customers and clients. As well as this, you’ll also have to consider things like antitrust rules, which have been revamped in the UK to improve the investigation process,increase penalties for those who fail to respond to requests for information on their merger or acquisition, or provide misleading or false information entirely.
