By Nicole Valentine-Moody, Esq.
Director
Business Consulting Group
KBL, LLP

Many people think mergers and acquisitions are for the big boys with the big money. But entrepreneurs who grow their businesses through successful mergers are reaping the benefits, and here’s why.

1. Capital, cash and credit
How are you going to scale your business in today’s challenging economy? It’s getting harder and harder to obtain lines of credit and loans from banking institutions. The U.S. Small Business Administration’s Office of Advocacy reported that bank lending to small businesses fell by $15 billion in the first quarter of 2011. Merging can make your company more valuable, putting you first in line for rounds of financing. Richard Levychin, CPA and partner at KBL, LLP, a firm that has advised on many mergers (including reverse mergers, where private companies go public), says, “The formula for a successful merger should be 1+1 = 3, 4 or 5. An ideal merger increases revenue, reduces overhead and redundancies, enables the company to attract more capital and increases the value of the owner’s equity in the company."

2. Customers
Peter Drucker once said, “The purpose of business is to create a customer.” I say the purpose of a merger is to create a more satisfied customer. Combining customer lists is the first step. The work continues with an assessment of how the merged company plans to build deeper relationships by passing down the benefits created by the merger. Ask yourself during the merger process, “How does my customer win?” If you can point to more customer service offerings, better pricing, innovative products and an improvement to the customer experience, then your merger makes sense.

3. Management talent and experts
Merging presents the opportunity to team up with experts who bring their vision, management and technical know-how to the table. The ability to leverage management capabilities is a skill and an asset. When Corey Kupfer and Brian Hamburger merged their law firms to create Hamburger Law Firm, LLC, two rainmakers with decades of M&A and corporate experience were tasked with operating on themselves. Kupfer credits the success of the merger to “a cultural fit, shared vision and values and complimentary personalities and leadership styles.” The two entrepreneurs play well off each other, and as a result, are free to focus on their areas of strength. “In a successful merger, you should ideally never have to look back at the merger documents,” says Kupfer. A merger is a business partnership that thrives because of the ongoing synergy of the team.

4. New markets
Merging with another company provides the opportunity to increase market share and expand into new geographies and sectors. Suveen Sahib, Group COO and CEO, Americas of EBS Worldwide, a marketing and technology company, merged his company that had a premerger value of $7 million to create a company valued at $15 million. Sahib says, “EBS Worldwide started in India and now has a footprint in the U.S., allowing for its global clients to benefit from our strong position in these regions and our large suite of services.”

5. Product development
Joining forces with another enterprise can create innovation in manufacturing, distribution, design and research and development. Before the EBS Worldwide merger, the company offered two service lines. Now they offer five service lines. Before the Hamburger merger, regulatory, compliance and securities clients were going elsewhere for M&A services. Now these clients can benefit from Hamburger’s M&A capacity.
Merging smaller companies is just as difficult as managing the union of larger ones. Merging results in the combination of assets and liabilities, so your due diligence process is the time to kick the tires and work with outside experts to discover and detect business information valuable for your decision. Michael Carter, president & CEO of BizEquity, created an online company valuation resource that enables entrepreneurs to understand what their businesses are worth prior to beginning merger discussions. “Get educated, get positioned and get connected before going down the M&A path”, says Carter.

Some recommended resources:

Anatomy of a Merger: Strategies and Techniques for Negotiating Corporate Acquisitions by James C. Freund
Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William L. Ury
The Art of M&A: A Merger Acquisition Buyout Guide by Stanley Foster Reed and Alexandra Reed Lajoux