Merging Two Private Limited Companies

Companies often find themselves in the position where merging with another business makes good commercial sense. There are a number of common reasons behind a merger and these can include creating value by combining the two companies, diversification into new markets, services or product lines,  acquiring assets, becoming more tax-efficient and increasing financial capacity. Choosing the right company to merge with needs to be done very carefully. Bearing in mind approximately half of all business mergers end in failure, thorough due diligence and investigations should be conducted prior to merging. In this article, Merging Two Private Limited Companies, we look at the fundamental steps that need to be taken.

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For a free initial discussion on how we can help you negotiate a merger, get in touch with us today. We will review your situation and discuss the process involved in a clear and approachable manner. Early expert legal assistance can help you avoid making mistakes, saving you money and also avoiding the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.

Why do Private Companies Merge?

Often the reason two private companies merge is that together they are stronger and more valuable than two separate ones. Stronger companies can buy others in order to create a more competitive and cost-efficient entity. This in turn has a positive impact on profits and consequently benefits shareholders.

Usually, a private company is acquired by buying all of the share capital both issued and to be issued. The advantage of doing this is that all of the assets of the target company are acquired. When a target company has been identified, the heads of terms need to be negotiated. These set out the main contractual terms of the proposed sale and will normally include the agreed purchase price, non-compete covenants, and warranties.

There may also be a proposed timetable, as well as confidentiality clauses, and/or exclusivity clauses. As it is possible to be liable for pre-contact misrepresentation, negligent, fraudulent or misleading statements it is vital that you obtain expert advice at an early stage to avoid these pitfalls.

What are the Steps Involved?

Merging two private limited companies as equal partners is a delicate process to manage – indeed, true mergers are relatively uncommon, as more often one company tends to be the junior partner. Even more than an acquisition, a merger needs to be mutually beneficial, with the goals and demands of both companies given equal weight. But if you can get the balance right, a merger may have the advantage over an acquisition by preserving the best qualities of both companies, without one superseding the other.

Every business merger is different, but most follow a similar process. This process involves a number of separate steps, mostly driven by the senior (larger) business in the merger, but involving both.

1. Select a target company and discuss the viability of merging.
2. Ensure you have expert corporate solicitors and accountants appointed.
3. Conduct thorough due diligence of the other company.
4. The company you are looking to merge with must be valued.
5. Ensure you have finance in place. This can take a variety of forms from bank borrowing to savings
6. Agree the merger in principle. It’s also a good idea, well before signing, to get key individuals from both firms together to begin planning merger integration.
7. Complete the deal.
8. Inform all staff and other stakeholders that the merger has taken place.
9. Ensure a detailed integration plan is in place.

What Other Things Do You Need To Consider?

When actually involved in the discussions leading to an agreement, there a number of key points to consider:

• Keep calm, respectful and unemotional.
• Try and build bridges between the two companies. Don’t criticize the other company.
• Keep the employees of both companies engaged and happy.
• Don’t get bogged down with the finer details. Be flexible and remember the bigger picture.

What happens if the merger fails

The unfortunate reality is that some mergers fail. If this happens, it’s most likely to occur mid-integration, during the critical transition period. Do all you can to make this a success, but don’t stake everything on it – ensure that both you and the other company have a contingency plan. The contract between you should have a clause that deals with failure, from how failure is defined to what should happen in those circumstances. Each company should have its own solicitor so that you can agree to the terms of that clause.

The best way to minimise the chances of such failure – and maximise the benefits of a successful merger – is to take the necessary legal and accounting advice at every stage of the process. With a combination of business vision and technical insight, you can make your new company greater than the sum of its parts.

How we can help

We have a proven track-record of dealing with business mergers. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.

How to Contact our Corporate Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of reducing risk, saving you money and ensuring you achieve a positive outcome.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

Authored by Ben Posted in Corporate, News Tagged as