A merger involves two businesses combining their operations to create one larger business. A successful manufacturer might plan a merger with a major parts supplier, for example. Two companies that compete may decide to join forces to dominate the local market.
Mergers can be beneficial for the combined organizations. Mergers require extensive planning and financial investments. Sometimes, the efforts invested in a merger go to waste because the transaction falls apart at the last minute.
What issues might arise that could prevent a merger from progressing as leadership at the involved companies had planned?
Interference from regulatory authorities
Mergers can create antitrust concerns. The combined final business may have too much control over one industry or a local market. If a merger is likely to result in a monopoly, regulatory officials might intervene. State and federal authorities can potentially file lawsuits to prevent a merger from occurring if it could have negative effects on the economy as a whole or on consumers. This risk is particularly serious in highly-concentrated markets.
Issues with financing
Mergers are incredibly expensive. While the resulting organization may be large and have many valuable assets, it can cost quite a bit to combine businesses, address redundancies and merge the culture of the two organizations. Outside financing often plays a role in mergers, as companies may need resources to cover short-term expenses and budgetary shortfalls. Issues with financing can potentially derail a planned merger and prevent the businesses from moving forward with the transaction.
Last-minute concerns from either business
Sometimes, owners or leaders at one of the two organizations notice something concerning about the other business. Perhaps they discover that employees there recently began organizing with the intent of filing a wage claim over unpaid overtime. Maybe there has been a surge in negative product reviews online, indicating a reduction in production quality and the possibility of consumer lawsuits. Issues related to the talent at a company or its liability may make a merger more dangerous than beneficial in some scenarios.
Either business may decide not to move forward with the merger when there are indicators that there could be financial liability, a massive loss of talent or costly litigation following the business transaction. Carefully planning for a merger and addressing potential pitfalls proactively can help take some of the risk out of these massive business transactions.