Do You Help Clients Merge?

Helping clients with mergers can be a great niche for PA accountants and CPAs. Merging can offer both companies the advantages of reduced operating costs, expanded markets, and rapid upsizing. When the right businesses merge, something even better can be formed. But if the businesses are not a good fit, it can spell hard times for the new entity. Companies need your expertise to make the right decision.

Mergers vs. acquisitions

The terms merger and acquisition are often used interchangeably as if they are synonyms but they are very different. In a merger, two companies join to form a new business entity with new leadership. In an acquisition, one company (usually a larger one) buys out a smaller or weaker company, which ceases to exist. The existing leadership in the acquiring company remains in charge. The term “hostile takeover” refers to acquisitions against the will of the smaller entity.                                                              

Different types of mergers

There are five major categories of mergers which depend on the goals of the companies involved.

Horizontal: In a horizontal merger, two companies in the same industry selling the same type of product may decide to merge. The benefits of this type of merger include a decrease in competition, a larger customer base, and reduced operating costs by combining production and overhead.

Vertical: Two companies that operate within the same supply chain may merge, with the advantage again of decreasing overhead costs, but also increasing efficiency and guaranteeing more control over the supply chain.

Product extension: If two companies sell similar products to the same target clientele, they may merge in order to expand their client reach and offer the clients an even better product experience, thus increasing customer satisfaction and growing their market.

Market extension: Two companies that offer the same basic product in different markets – different regions of the country or the world – may merge in order to expand their market share without the cost of opening new branches or facilities.

Conglomerate: Companies that offer completely unrelated products or services may merge to diversify offerings or provide a cushion in volatile markets. Companies may benefit from shared operating costs or overhead but still operate as distinct companies.

Guiding your clients through a merger

The leadership of the companies needs to consider many factors before deciding to merge. Poorly-considered mergers can result in a very poor bottom line and possibly the demise of the company. So before you take a deep dive into the companies’ financials, walk them through an intense review of the following questions to significantly increase their chances of success.

• What is your objective, your reason for merging?

• Do the company cultures match?

• How will each company benefit and how will the customer benefit from this merger?

• What concrete steps will be taken to protect the client base and conserve customer loyalty? How will you assure them that good products and services will continue, and provide them an even better customer experience right from the start?

• Who will be among the leadership team in the newly merged company? Do they have a shared vision and culture?

• How will the workforce be impacted? What steps will be taken to assure existing employees that they will be taken care of? If there will be a workforce shrinkage, what exit benefits will be provided? 

Once it is clear that the two companies are a good match, the negotiations and the steps of financial merging can begin. Your expertise in this area will help ensure that their newly merged business entity will stand on a firm foundation, and they will continue to turn to you for your expertise in the future.