Integration issues in mergers and acquisitions
Corporate combinations in the United States often present several integration issues in mergers and acquisitions transactions. As discussed in our various articles, corporate law in the United States provides couple of methods for combining two or more business entities under one management through mergers and acquisitions. And the merger and acquisition of corporations frequently exhibit integration issues, despite the fact that the methods are designed to produce functionally identical results. The choice of method can affect the protections available to owners or shareholders, the taxation of each business entity and its owners and the liabilities of the resulting entity.
Some of the integration issues in mergers and acquisitions include:
Once the two companies combine, they become one. As a result, the merged or acquired entity is different from the one that existed before and it needs to consider creating a new corporate identity. Corporate identity defines what makes a company unique and the name and logo are simply manifestations of that corporate identity. Therefore, the change of corporate identity can first take the form of a new company name and/or logo. Obviously, before these issues are decided, it is important to consider what does the new company stand for, how is it different from the prior company and what are its long-term goals. Some of the aspects that define corporate identity include the company’s market share, customer base, industry identification, employees and direction.
Corporate Culture and Corporate Attitude
After the due diligence, negotiations and the merger and acquisition transaction are completed, the company has to move on with its business. When getting on with the business it is important for the Buyer to be open and be sensitive to the corporate culture of the seller and the cultures of the combining entities. Otherwise, by displaying an uncompromising attitude, the Buyer will ruin months of goodwill with the Seller and its employees.
Some of the key steps the Buyer can take to ensure a successful merger and acquisition transaction include allowing cultural differences to play a part when determining the value of the deal, realizing that the cultures of both companies are important and acting on it, admitting that is not in either company’s interest to maintain both cultures and figuring it out how to combine the two cultures in a way to create a harmonious new corporate culture. The primary reason why a deal can explode is that cultural differences often result in decreased productivity which leads to lower revenue and income, and therefore the combined entity may be worth less than initially expected.
Vendors are often overlooked by Buyers after the closing of a merger and acquisition transaction. The reason for it is that Buyers assume that any vendor can be easily replaced. While this is often true, it is important for the Buyer to review all the exiting suppliers as soon as possible in order to ensure that the seller is getting the best terms and prices. However, there are certain suppliers that are essential to the continuation of the business and its success and their replacement would create significant disruption.
We presented above some of the integration issues that arise in a merger and acquisition transaction past the closing of the deal. However, aside from the challenges above, some other integration issues include the integration of human resources, the operating and management information systems, the accounting methods, financial practices and others.
Contact us, your business law in Florida, to help you execute a plan that addresses integration issues in a mergers and acquisitions transactions.