Myles Hamilton, Director and M&A specialist at Shaw & Co, explains what you need to consider when structuring a merger with another business.
The newly enlarged business will need a strategy that is appropriate for its increased scale and enhanced market position. This is likely to cover things such as aligning the services and products that have been brought together so that they are complementary and consistent, a potential rebranding exercise and associated marketing and communications campaign, and a future exit for the shareholders.
It may be clear who will become the CEO of the enlarged business, or it may need careful negotiation. The leader of the other business could become a chairman or take on another C-level role such as COO or indeed may choose to exit. There is likely to be duplication across other roles at board level which needs to be discussed and handled carefully. Key to success is understanding what each individual wants out of the merger.
A key driver for most mergers will be the commercial benefits that the enlarged business can access because of revenue (cross-selling) and cost synergies (removing duplicated overheads). These benefits won’t just happen by osmosis and a detailed plan is needed to make sure as much value is unlocked as possible without upsetting employees, customer and other stakeholders.
Often it will be desirable to rebrand the enlarged business to reflect its new status in the market and to give the market clarity that this is a new and improved offering. This may sound straight forward but it is not and even agreeing the brand name may be tricky. It will take significant investment in time and money to get this right.
A merger is likely by its very nature to lead to a concentration of market share. This will give the enlarged business a stronger position in the market and perhaps an opportunity to increase prices and greater buying power. If properly executed the result should be an improved profit margin as a result of the merger, even before any cost synergies are realised.
However, care needs to be taken when consolidating market share as the Competition and Markets Authority can investigate even relatively small deals if they are in a very niche market and may have an adverse impact on competition. Without CMA approval and if they find that the market has been negatively impacted, they have the power to force a deal to be unwound.
The enlarged business is likely to be more attractive to debt funders and the merger is likely to create an opportunity to raise more capital and at cheaper rates than was previously available. This can be used to refinance existing debt facilities, pay out exiting shareholders, invest in the development of the business or to fund future acquisitions. Shaw & Co’s debt advisory specialists can help assess the opportunity…
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