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Your small business merger checklist

There are a variety of reasons why companies may merge. Some may result from a hostile takeover, where one business decides to gobble up another for strategic reasons such as eliminating a competitor or acquiring its assets. Or companies may just decide to join up to obtain a competitive advantage.

Whatever the reason behind it, if you’ve landed here, there’s a good chance you’re a small business owner with a merger on your mind. Mergers can be a great way to scale and grow a business, potentially adding value for all stakeholders.

There are different types of mergers; here are the most common:

  • Horizontal mergers. This is when two companies with similar businesses get together to expand their product or service offering
  • Vertical mergers. A vertical merger is where two companies at different points in the supply chain join forces to gain efficiencies, for example a food retailer acquires a food manufacturer
  • Conglomerate mergers. A conglomerate merger is the joining of companies in different yet complementary businesses join up to expand their offering
  • Concentric mergers. This is where companies in similar businesses and with similar customers scale to expand their range of offerings

While mergers can be an excellent way to scale and grow, they can also be disruptive to existing businesses, expensive to execute and in some cases risky.

The best way to execute a merger efficiently is to plan, engage experienced advisors, an- clearly understand your motives for the deal so that you can hit the ground running when the transaction is completed. Our merger checklist is designed to help you achieve these goals.

Pre-merger to do list

As we’ve seen, there are different types of mergers and acquisitions, and acquisition is slightly different from merger. An acquisition is where one company takes over another so that the acquiring business can benefit. A merger involves the combining of two equal partners for the benefit of each, although very often one of the partners has slightly more edge in terms of bargaining power.

Here’s our checklist of things to consider if merger’s on your mind:

Do your homework

Once you’ve decided on a potential target for your merger, you need to be sure you’ve made the right choice. You’ll need to evaluate any downsides to the deal, and understand the true nature of the business you are interested in.

There’ll be plenty of publicly-available information, and you can also talk to current and former employees and managers – they can tell you a lot about how the company functions, and its strengths and weaknesses. Depending on your particular objectives for the deal, you can focus your enquiries on the specialists in each organisation (finance, IP, sales or customer service for example) in order to get an informed view of fruitful areas to explore during due diligence.

Zero in on your goals

If you have a crystal-clear goal for your merger, you’ll be able to successfully communicate this goal to stakeholders.

When formulating the message you’ll deliver to your team about the merger, trouble-shoot any difficulties the deal may pose, and figure out how easy it’s going to be to integrate the two companies. Develop a communications strategy that’s centred around the overall benefits to all parties: employees, shareholders, suppliers and customers.

Aside from your overarching goal, there’ll be certain specific reasons why you want to merge, whether that be acquiring new customers, growing your share of the market, or gaining access to certain know-how or processes of another company for example. You need to express these goals clearly and bring them to the forefront of your communications strategy from the beginning.

By defining your objectives, it not only becomes easier to make decisions as the merger progresses, but also helps avoid protracted negotiations on irrelevant or relatively unimportant matters.

Hire experienced professionals

You’ll need the support of a professional team of expert M&A lawyers behind you from the very beginning if you’re considering a merger.

Here’s the kind of help we recommend:

  • A law firm experienced in successful mergers. On the team, you’ll need employment lawyers, corporate lawyersintellectual property rights, and taxation specialists. Possibly a commercial lawyer too, to ensure that supplier and customer contracts transition smoothly to the merged entitywyers, intellectual property rights, and taxation specialists. Possibly a commercial lawyer too, to ensure that supplier and customer contracts transition smoothly to the merged entity
  • Corporate accountants that can look at the financial health of both companies to make sure you have the bandwidth to complete the deal. They can also help you obtain funding for the transaction if you need it
  • A communications guru. You may have one on the team already, alternatively engaging a professional advisor who’s used to dealing with mergers can really help bring the various parties together as well as communicate with third parties

Consider the effect on the businesses’ stakeholders

When a merger happens, existing shareholdings may be diluted. For example, a 10% shareholder in your existing business may only hold 5% post-merger, and this will affect their voting power. If there are existing shareholders agreements, you’ll need to re-negotiate, and put a new agreement in place that will cover the relationship between the shareholders of the combined company (newco).

The value of the shares in both companies involved in a merger may also be affected by a merger. Shares can go up or down over the short-term, and it’s wise to prepare your shareholders for this eventuality. Of course, you’ll hope that in the medium- and longer-term, the share price of the combined entity will rise due to the efficiencies created by the merger.

In addition to your shareholders, your employees will also be affected by the merger. They may be concerned about the effect on jobs and confused about the merger process. Make sure you fully involve your top team and develop appropriate comms channels for staff so that they know what to expect as the deal progresses.

Calculate the costs involved

Mergers can often save costs, but they can be expensive too, not only in terms of direct overheads like advisor’s fees but also the costs of change. Staff turnover can become an issue, and productivity can dip as your team deals with the demands of the merger alongside their day jobs.

If you factor in these costs and put a price on the likely overhead of the deal, you’ll get a true picture of whether the merger is worth doing.

Scenario plan

A common mistake when planning a merger is to focus on the organisational structure ­– the make-up of the new board of directors and chain of command rather than operational and cultural factors.

However, if also focus on process and individual factors such as the teams’ skills and talents and be precise about the benefits you hope to achieve, you’ll be able to plan for different scenarios and adapt your stance if needed.

As you progress through the transaction and carry out due diligence, you can test out these different scenarios once you get a handle on the detail. You can then figure out how the new company might work most efficiently to take advantage of the potential benefits.

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During the business merger process

Once you move into the transaction stage, here are the things you need to think about:

Stages involved in a typical merger

These are the most usual steps in a company merger:

  1. Initial research and planning including pre-contract discussions between both parties and possible agreement of an outline term sheet or letter of intent
  2. In-principle agreement on finance and funding
  3. Appointment of legal and financial advisors and brief your communications team
  4. Initial communications to stakeholders about the merger
  5. Due diligence and valuation of the businesses
  6. Development of a plan for merging the two businesses’ operations
  7. Finalisation of the term sheet
  8. Negotiation of legal agreements
  9. Finalisation of the legal agreements and completion
  10. Communications to stakeholders and the public

Due diligence

Due diligence is the investigation of the business affairs of a company. Due diligence is essential to understand how a company works in practice and can be carried out in a physical space (known as a data room), or, more commonly, virtually.

These are the areas commonly covered during due diligence:

  • How many employees does the business have, how are they remunerated and what are their skills? What are the pension arrangements?
  • Are there any potential legal issues like employment claims or litigation pending or threatened?
  • Are there any regulatory or licensing issues?
  • Are there any financial issues like unforeseen debts and liabilities?
  • How healthy are the company’s sales and cash-flow statements?
  • What customer data is available? How is customer retention?
  • Who owns property like real estate and IPR?
  • What IT platforms do the company use and what processes and systems are in place?
  • How robust are the company’s contracts with customers and suppliers? Might they be impacted by a merger?
  • What is the company culture like, and how amenable are staff to a merger?

Planning and communications

A high proportion of mergers don’t go according to plan. So, while it’s great to put some milestones in place (and communicate these to stakeholders), it’s equally important to remain flexible as you move forward with your merger.

Having at least a skeleton plan for the deal will help motivate your team to keep moving forwards, when at times the work associated with the transaction can be burdensome.

When planning your merger and setting up your communications strategy, make sure that staff are consulted and not just broadcast to. They will likely have worries and concerns that it will be in your interest to address, such as pay and holidays. You can use an interactive platform to host your plan and timetable, and address questions and comments in real-time.

As part of your comms strategy, you may want to consider the issue of branding, and what the new company’s brand will look like post-merger. This can also be a contentious issue. Make sure you consult your legal team to make sure your chosen brand names are available to be trademarked if necessary.

Deciding on a corporate structure

If two companies are merging, the most likely scenario will be that a newco will be created. Newco will acquire the shares of the two merging companies, and new shares issued to newco’s shareholders. If one of the merging entities isn’t a company, you may need to consider a different structure such as a purchase of assets. Your legal and tax advisors will help you decide the best structure for the transaction.

Your management teams will also be keen to know how the new board will be structured. These conversations can be difficult, and engaging a skilled employment law solicitor  can help steer you through any tricky situations with executives

If, as part of your pre-deal investigations you’ve got a good handle on the company culture at your target, now is a good time to sit down with management and agree potential reporting lines. You’ll get a good idea at this stage how the teams will look and whether you envisage any potential clashes or other issues.

Finance and tax

Before you go into a merger transaction, you must fully understand your target’s financial position, and the tax ramifications of the deal. You’ll need an expert advisor on hand to help you with this, even if you feel fairly proficient in financial affairs. In addition, look carefully at revenue and cash-flow statements to get an idea of operating costs.

You’ll also need to conduct a valuation of the merging companies so that you can reach a share price for newco and allocate the shares fairly between the owners of each company. You’ll normally need the help of an expert valuer to assist with this.

Post-merger integration

Post-merger is the time when the rubber hits the road. The ripple effect of a merger can last for months and years after the deal has competed. Your aim is to ensure that the performance of the new company is an improvement on the sum of the performance of the merging companies, and to achieve this, you need to meld their activities in as seamless a way as possible.

Here are our tips for achieving a successful merger of small businesses:

Communicate effectively with everyone involved

It’s normal that a merger will provoke anxiety in staff and even shareholders. Employees may fear for their jobs, teams may be content working within their comfort zone and fear change, and managers may be anxious that their position and seniority will be threatened.

We recommend setting up an interactive platform so that staff can ask questions and hold regular Q&A sessions where managers can answer questions. If your company employs more than 50 staff, you may be legally obliged to consult and have a formal system in place to this end.

Plan, plan, plan

If you’ve done your pre-merger spadework, you’ll already have a good idea of how to optimise the benefits of combining the two companies, and that includes planning how to meld together two different company cultures and ways of doing business.

Make sure you plan how to problem-solve the difficulties that are bound to arise within the leadership teams and how to reconcile the different approaches to operating the business. Figure out how to combine the various processes and systems to best effect.

Prioritise and problem-solve

Above all, take your time. Prioritise the most important changes and communicate clearly to the teams how these could happen. Use your teams to help you problem-solve and give them agency to test different approaches and find the best solution.  During this critical period, make sure that your leadership team is on hand to supervise this process and stay close to the detail.

Don’t be afraid to change tack if things aren’t working out as you had envisaged and have a backup plan in place if you feel that the merger just won’t work. If you’ve deal with this in your merger contract – your lawyer is essential here ­– then a divorce will be easy and painless.

Above all, make sure you have great legal and financial advisors on board at all stages of the process, both pre- and post-merger, so that whatever the outcome your most valuable business asset is protected!

For more advice on mergers and acquisitions, consult our corporate solicitors. Get in touch on 0800 689 1700, email us at, or fill out the short form below with your enquiry.

About our expert

Nikki Reid

Nikki Reid

Corporate Partner
Nikki joined Harper James in November 2022 as a senior corporate solicitor. She was promoted to corporate partner in November 2023.

What next?

For more advice on mergers and acquisitions, consult our corporate solicitors. Get in touch on 0800 689 1700, email us at, or fill out the short form below with your enquiry.

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