Dallas business law attorney, Richard “Ric” Armstrong, offers advice for Texas small business owners who are considering merging with or acquiring another company for the first time.
Completing a company merger or acquisition can be both an exciting and daunting prospect, especially if you’ve never been part of one before. When acquiring another business, you derive benefit from the strengths of that company, but you’ll also inherit that company’s problems. When you merge your company with another, you must entrust the fruit of your hard work to others in hope that they will be as good to your business as you are.
Obviously, you should consult a business attorney when exploring the complexities of any M&A transaction. For now, let’s explore a few nuggets of wisdom from other business experts and company founders who have been down this path before.
Look at Synergy, Not Just Revenue
“Reasonable mergers generate substantial synergies, so that provides for earnings and cash-flow growth even if it doesn't provide for revenue growth.” –Robert Altman, Founder and Chairman of Evercore
“When mergers fail, it's often because no one focused on who they are - that is, their culture, which is critical to successfully bringing different groups of people together.” –Punit Renjen, Chairman, Deloitte, LLP, 2011-2015
When acquiring or merging with another company, synergy is just as important as revenue potential, if not more so. Two companies attempting to merge with incompatible philosophies and conflicting workflows are more likely to lose money in the long run.
Bigger Isn’t Always Better
“We are reluctant to do these bigger acquisitions that are then integrated, especially if they are committed to a certain product that they want to build that we can't guarantee we will keep evolving.”—Tobias Lutke, founder of Shopify
“Edelman maintains a very conservative balance sheet. We do small acquisitions. This helps me sleep well at night.” –Richard Edelman, President/CEO of Edelman
Sometimes acquiring a company larger than yours isn’t worth the long-term effort or risk, even if its financial projections are good. Smaller acquisitions are easier to integrate and can end up being just as profitable.
Don’t Look to a Merger/Acquisition as a “Fix” for Your Company Problems
“Successful enterprises are built from the ground up. You can't assemble them with a bunch of acquisitions.” –Louis V. Gerstener, Jr. (Nabisco, IBM)
A healthy acquisition can make your business stronger, but don’t think of it as a “fix” or a shortcut to success. There’s no substitute for good business practices, no matter what company you merge with or acquire.
Before entering into any M&A transaction, always cover yourself legally by involving an experienced Dallas business law attorney. Call Armstrong The Law Firm, P.C., today at 972-424-L-A-W-S (5297).