What factors should I consider when thinking about merging with another business?
I was approached by another early stage craft business about combining our businesses. It would be great to work with someone else, but I am not sure how to value my business and how to structure such an arrangement. I'd appreciate hearing from others who have been in this situation or who have any experience with such mergers.
Work on 1 pilot project as a trial before a more permanent commitment is considered. To be in an exposition or fair together could be the perfect venue. Never refer as your colleague as your partner. In some States this is considered a binding contract. Each of you should have an independent evaluation of your business from an impartial CPA. Think about the pros and cons very carefully before making a decision.. Beverly Kennedy, WBZT,COM or IHEART RADIO, Mon & Sat. 6-8 pm., editor in chief and host of LIFESTYLES MAGAZINE RADIO
I'd find out who would actually be in charge of the business and what your role if any would be, as well as if you'd need to sign a do not compete agreement.
First of all there is no such thing as a merger. There is only a take-over. One party to a transaction will always emerge as the "boss", however the language is dressed up. If you are confident that is you and everything else lines up then go ahead, but if you have doubts don't think about it any further.
Ask yourself these questions:
1. What is in this for me? Can the proposer bring something to your business that you don't already have or which you could not get by simply working with that person on joint projects? An example might be offices or a workshop. You could simply share and pay rent, no need to merge.
2. Do you like this person, and how well do you know them? You need to be able to get along, have common values etc to be successful in business. It is not dissimilar to marriage so all the same rules apply. Be sure you really know the person before you commit.
3. Can we collaborate to mutual advantage without merging? If the answer is yes, then this is a wise way to go. It allows you to work together with much less risk and potentially ALL of the benefits.
Hope this is helpful.
As someone who has gone through this three times and been badly burned every time ...be Very sure this is something you want to do. There is a fine line between combining businesses and hostile take-overs!
The top non-negotiable criteria for now are - do they match our values and what type of culture do they have? And you need to be real specific about both. Do you have your own values and culture documented? Is everyone in your business living those guiding principles? Does the other company have them documented and living them? Are they all about the money? Or is leaving a legacy more important?
If you want to work with someone else, look into turning your business into an employee-owned one, also known as a worker cooperative. Just as much work as a merger, but maybe with a better outcome if you have the right staff already.
Start with a joint venture, wait 6 months, and start negotiating a merger within an additional 6 months if it's still all fun after the first 6 months.
Having been done a number of M&A gigs, I can assure you that you have already received a great deal of good advice on a number of areas that are in consideration. Perhaps reducing it to:
WOULD YOU MARRY SOMEONE THIS SOON, BECAUSE THERE IS A PROPOSAL?
this is an equally consuming relationship.
Hi Jen, There is a lot more to evaluating a business proposition than merely considering the initial 'proposal." As a Business Broker I am involved in mergers, strategy and appraisals on a daily basis. More than happy to talk to you about it and provide some pointers through the maze.
Jen, in reading the many responses to your question, I especially took note of those by Kyle Restoule and Andrew Marks. This is because they touch on the behavioural side of the merger and I do a lot of behavioural consulting for large and small firms. While they rightly focus on the personalities/likes/dislikes of the two merging owners, I would expand that focus to the organizational cultures. For example, regardless of how compatible the CEOs of Apple and IBM might be, the loose fit "creative" culture of Apple would never tolerate the "black suit" stiff control of an IBM...The question then become not how do we merge, but how do we integrate to create a best of both.
There are multiple criteria to consider. Firstly, do you want to continue working in the "merged" business? Is the bidder trying to buy you? Typically there are three scenarios -
1) offer fair market value (FMV) - entrepreneurial mode
In this mode, it takes about 6-18 months to close and the owner (seller) is usually out of the decision making role
2) below fair market value - i like to call them vulture capitalist
Take a bouts 0-6 months to close and the seller is relegated to a role of servitude
3) Above FMV - would be a strategic buyer
Takes about 18-36 months and the seller is usually in golden handcuffs
For a business partner you would need to consider the personality and of course be able to trust this person. A business coach might be able to help with the merger, at the same time be the trusted advisor you need till you are able to establish a trusting relationship with your partner. As far as appraisals are considered, you can always reach out to industry experts on valuing your firm. Please note, i am not trying to sell my services here.
What is the added-value? Can you trust your new partner(s)?