When a business begins to consider a merger or acquisition, each action requires specificity and precision to ensure your interests are protected, and when it comes to these business deals, professional services firms make for some of the most complex transactions. Professional services firms exist because they provide services that are difficult to quantify, including fractional or full-time advisory staff and solutions customized for the individual client’s needs. The tangible nature of a business changing hands means there are key considerations professional services firms should know before entering into a merger or acquisition, due to the intangible nature of the work they do.
Mergers and acquisitions are very different business processes that involve a lot of legal analysis and drafting. That said, they share many considerations and actions that you need to take before getting too far into the process. Once your merger or acquisition is underway, it will be important to maintain your due diligence throughout the entire process.
Should I Treat a Merger and Acquisition The Same Way?
While it is true that both a merger and an acquisition involve combining two or more businesses into one, the structure of the deal, processes involved, and strategies underlying them generally are quite different. It is important to apply the appropriate analysis to the specific transaction you are considering. Understanding the business reasons behind the change and the future goals of the current and planned companies will better protect everyone involved.
Mergers occur when two or more companies combine to form a brand new entity of its own and is usually a collaborative initiative in which the companies are relatively the same size and handle similar work. Often, a merger provides for shared ownership and may even result in a shared leadership structure in which, for example, one company’s principal becomes president of the new entity and the other company’s principal becomes CEO. A merger requires care surrounding branding and operations to ensure that the employees and customer base understand and are comfortable with the ongoing changes.
Acquisitions occur when one company absorbs one or more companies through a purchase agreement, and all assets, including the workforce of the purchased company, become part of the purchaser’s company. Strong and careful negotiations are critical in an acquisition, and those discussions will result in an acquisition that is either friendly or hostile. Change management will be key for all parties as the company that is acquired might continue to operate as it always has or see drastic shifts, including full rebranding.
What Should I Think About When Considering a Merger or Acquisition?
As a professional services firm, there are specific factors to examine when considering entering into a merger or acquisition. Your analysis should begin with questions about whether the changes will align with or otherwise complement your company’s goals. Part of that analysis will include what impact the change will have on your services offered, the client base you have built, and operations generally.
With that strong foundation for your decision-making and strategic planning before entering into a merger or acquisition, you will also want to consider:
- Financial impact
- Deal structure
- Integration plans
- Leadership transition
- Team conflicts
Information about and decisions on those factors will help you determine whether you want to pursue a specific merger or acquisition, but the analysis is far from over. There are many additional factors you should take into consideration before you enter into serious discussions about merging with another company or allowing your company to be acquired.
Additional factors that are important to consider when evaluating what you want and need for your company when pursuing a merger or acquisition include:
- Licensing issues
- Regulatory requirements and other compliance matters
- Existing contracts and liabilities
- Pending litigation that could have an impact on the immediate plan
- Client strategy
- Information technology needs
- Training needs
- Total rewards
All of these factors will be integral to creating and implementing a transition plan to ensure retention of employees, confidence from the client base, and the successful results all parties are seeking.
How Do I Ensure Strategic Alignment and Ultimate Success?
While you know nothing in business is certain and even the best-laid plans can be derailed by something unexpected, there are several steps you can take to increase your chances of success. By building a strong deal foundation and completing a strong analysis of the factors important to a merger or acquisition, you are well on your way to alignment and positive results. Ultimately, the documents underlying the merger or acquisition will matter.
Thoroughly researched strategic plans are always superior to less developed ideas, and it is important to perform that research on financial, legal, and operational matters and potential liabilities. Liabilities and risks can come from regulations and industry standards, which must be reviewed carefully to ensure compliance throughout the process. You must also make a decision about how you will value your company so that you can support what you are willing to give up at what cost.
Once the terms of the merger or acquisition deal structure are finalized, your plan must also take into account the timing and process for integration. This plan must consider systems and existing processes, impact on employees, and effects on stakeholders to avoid disruptions and loss of value. You also need to outline clearly your plans for ongoing transparent and timely communications to those who have a need to know, whether and when you want to make a more public announcement about the merger or acquisition, and how you will otherwise manage the changes that will necessarily be a part of the experience with your business during and after the merger or acquisition.
How Can I Best Protect My Interests?
Mergers and acquisitions are complicated transactions that require due diligence throughout the process and great care in preparation, execution, and follow-through. An attorney experienced in this type of legal action is critical to protecting your interests. Contact the business lawyers at Fee Smith & Sharp LLP today so you can ensure the steps you take are considering all factors of these complex agreements and create the best plan possible for you, your business, your employees, and all of your stakeholders.
