What To Consider When You're Thinking of Merging or Acquiring Another Company

One of the types of projects that can be funded at Capital Corp Merchant Banking is acquisition or merger of one company by another. During the Due Diligence process there are, of course, many types of questions and/or points that must be adequately addressed. The process of a firm buying out another can be a laborious, demanding process and can take weeks, months and in some cases even years. That said, it can also be a very rewarding process if executed correctly if the necessary Due Diligence is performed and completed.

There are always some challenges in mergers and acquisitions, and since the acquisition of a business will generally involve investing a sizeable amount of money and time, it is critical that the purchasing firm be diligent when gathering information about the business to be merged in or acquired. Also, gathering and learning everything possible about the business to be acquired or merged should be conducted prior to the signing of any purchase or other agreements and especially before approaching a group such as Capital Corp Merchant Banking for the necessary acquisition funding requirement.

Conducting a thorough due diligence will allow the buyer to avoid potential problems, the likes of which are:

· Discovering that the purchase price of the business is too high

· Misunderstandings as to the type and condition of the business being bought

· Bad financial situations

· Pending lawsuits

The above list is by no means all that is necessary to know about the business to be acquired but it is definitely a crucial starting point for any purchaser.

Insofar as a firm such as Capital Corp Merchant Banking is concerned, representations made by clients will be verified for their correctness during the Due Diligence process, as always. For instance, to validate the acquisition price of the business, investors or merchant banking groups such as Capital Corp Merchant Banking will require the assistance of a third party to complete a valuation of the market value of the business. Therefore, it is pivotal for any firm looking to go through a merger or acquisition to do their homework.

Another example of the importance of doing a thorough due diligence on a merger or acquisition may be for financial reasons; a "buyer" (or acquirer) may have product lines in the maturity stage that have been successful over many years, and thus it has cash reserves. Thus, the "buyer" can make a cash purchase on a company that is still in a growing stage and support new promising product lines. This leads us to our next point.

The reasoning for a merger or acquisition does not rely on the question of “fit” alone, however, and a promoter or prospective Client of Capital Corp Merchant Banking must understand this element before presenting the project to us or other corporate investment entities or banking institutions. In other words, in some acquisitions or mergers there is a particular benefit that comes from combining the two corporate entities and often validates the reasoning for the acquisition, which is: is there is a strategic fit between the economic and visionary goals of the two companies? Are the corporate goals and product strategies aligned or do the two companies have severely different lines causing the formation of a conglomerate?

Some other things to consider may be that the personnel of the two organizations have a similar work and ethics environment and would be a natural fit. Some mergers or acquisitions are also carried out for geographic goals, such as expanding the reach of their business.


Always make sure that you make an informed decision in all cases,


Regards,


The Team at Capital Corp Merchant Banking