A merger can provide myriad advantages and opportunities for both companies. However, sometimes, these advantages can blind those who are considering the merger to potential problems ahead.
There are a number of red flags to look out for as you do your due diligence ahead of a merger. Let’s look at some of them.
- Corporate cultures that are incompatible: For example, maybe your company has a strict hierarchy while the other one involves employees at all levels in the decision-making. That can be a real culture clash.
- Conflicting business models: Just like corporate cultures that don’t blend, conflicting business models can be an issue. If the way that two companies do business is substantially different, merging may be virtually impossible unless one is interested in changing their model.
- The other business is less than transparent: Both sides should be open and honest about what they want from the merger and, of course, about all of their financial data and legal and personnel issues. If the other party is being less than forthcoming, that could be cause for concern. It’s essential to thoroughly investigate a company and to run background checks on all aspects of it, including its officers and top managers.
- The other company is in a hurry to merge: This can be a sign that they foresee problems on the horizon unless they find a “white knight” to save them. This is another reason why thorough research into the company’s financials and more is vital.
These and other red flags may or may not be an issue. However, you don’t want any surprises when it’s too late to back out. If you’re considering a merger, you want to have an experienced attorney on your side who will provide guidance and work to protect your interests and those of your company and employees.