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Virtual General Counsel LLC

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Merger negotiations do not always result in a final agreement

| Apr 12, 2018 | Mergers & Acquisitions |

Sometimes, two small business owners in Colorado decide to combine their businesses in a way that creates a single business entity. This is known as a merger, and it can be a way for two small businesses to grow their operations. However, there is much negotiating that will take place as the two businesses decide how best to form the new entity. It is hoped that these negotiations will result in a final merger agreement. Unfortunately, these negotiations can fail. When this happens, a satisfactory merger agreement is never reached and the deal falls through.

What are some reasons why two small businesses wishing to execute a merger agreement would be unable to achieve this goal? It may be because each business has different intentions with regards to the merger. One business may view the merger as a strategic move to grow their business. But, another business may simply be looking for a way to bring more attention to its business operations. When business owners cannot see eye-to-eye, when it comes to why they are wishing to negotiate a merger agreement in the first place, the deal may fall through.

In addition, there may be disagreements about how the new business entity will be run due to poor communication between the two business owners. A merger agreement cannot be reached if the two parties cannot effectively communicate how they want the final business entity to operate. Similarly, the two small businesses might have such different business cultures that coming to a satisfactory agreement simply is not possible.

In the end, for small business owners to merge into a single entity, a merger agreement will need to be negotiated, drafted and reviewed. Due diligence must be performed, since in a merger each business will be combining both of their assets and debts. This means that each company needs to be totally transparent about its finances. With an incomplete picture of each business’s current status and operations, it can be difficult for each party to make informed decisions. In the end, negotiating any contract, including a merger agreement, is a nuanced affair and sometimes is not always successful. Therefore, despite their best intentions the parties may end up remaining separate businesses, and a newly merged entity is never formed.