When Two Businesses Come Together...Merger At First Sight


“Merger” is a phrase often used when two businesses join together but, unlike relationships between two people (hopefully!), the power balance is rarely equal between the two and, in reality, mergers involve one business taking over another.

Merging businesses can provide many benefits such as economies of scale, improved organisation and efficiency, more ideas for growth to be shared, and better customer service. However, as with any relationship, there can be challenges. Ensuring a good cultural fit can be as important as reviewing accounts and profit forecasts to ensure a healthy and strong future business relationship, whether the businesses are competitors at the time of the merger or providers of complementary services.

Proper legal due diligence can really help with this. It is important to understand not only the profit and loss account of a target business but also how the business actually works in practice. Legal due diligence will cover the target’s relationships with its customers and suppliers, investigation into the target’s assets (whether these are commercial properties, tea plantations or intellectual property), and advice upon any shortfalls in or issues with the target’s trading terms and other contractual relationships.

Due diligence will also, importantly, provide a buyer with an overview of the target’s employees. Due diligence into employment will give insight into contracts, roles, and also into the target’s working culture, as it will cover HR issues such as sickness absences, disciplinary matters and grievances.

A careful review before jumping into bed with another business can help prevent problems arising later, and legal due diligence will provide an analysis of any issues, and advice about potential solutions and steps to take to minimise risk.

Also, having your eyes open to issues and risks will let you move towards a merger in a rationed and aware manner without being infatuated by the idea of how the businesses could work together.