To Merge Or Not To Merge: That Is The Question

Two firms of equal size decide to merge. The chemistry between the partners is good; there are synergies in the businesses; and both entities are profitable.

What are we waiting for…let’s merge.

Based on the above information, it would be easy to assume that the new, double in size firm, is going to be successful. The hard truth is looking good on paper is no guarantee of success – and bigger does not necessarily make you better.

The first thing we need to do when contemplating a merger with another firm is to put aside our valuations, multiple assumptions and financial analysis. That comes later. The first question that needs to be asked is this: Will the new firm be better than the old one? There are three parts to this question:

  1. Employees and staff: Will the combined entity offer more opportunity and job satisfaction to our current employees? Will it become a magnet for new talent?
  1. Clients: Will the new firm deliver better service to our clients? Will we become “stickier” and have greater opportunity to cross sell incremental services?
  1. Competition: Will we become more competitive in our markets? Will this create opportunities to increase our ability to obtain new clients?

The financial projections we make are certain to fail if the merger results in staff turnover, unhappy clients and an inability to effectively compete for new clients. Take the time to really understand what this means to your firm – how it impacts your key constituencies and place in the market. If you get that right, the financial rewards are certain to follow.