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The pros and cons of business mergers

Nov 17, 2022 | Business Litigation

You’re a private business owner and you’re particularly close with another private business owner. You both go out to lunch every day and engage in vibrant conversations. Suddenly, the topic of business merging comes up. You and your friend wonder if merging your companies is a good business move.

There are many rules and regulations you both need to follow when planning a business merger. In addition, it’s crucial to weigh the pros and cons of business mergers overall.

Pros of business mergers

Merging two companies can bring several advantages:

-It cuts down on competition: If you and your friend specialize in the same industry, why keep them separate when you can combine them into one company? Not only does becoming a single entity help business owners collaborate, but it also benefits customers because they have more options to choose from under one location.

-It could save a failing business from bankruptcy: Maybe your (or your friend’s) company hasn’t been doing so well lately. Merging companies could create a lucrative situation since it could strengthen an unprofitable business and protect employees’ jobs.

Cons of business mergers

Though business mergers have many benefits, they’re also quite risky. In fact, business mergers have a failure rate of 70 to 90 percent:

-Company mergers may create a culture clash: Many businesses have their own company values and culture. Even if you and your prospective business partner are close friends, there are likely some matters you will never agree on, which can be bad for business.

-Combined businesses may mean combined debt: Suppose you and your friend are behind on business loan payments. If you both merge businesses, you may have to share the responsibility of paying off the debt amount. This can adversely affect eligibility for borrowing future loans or extending a line of credit.

If you’re still unsure whether a business merger is the best route to go or not, consider seeking experienced legal assistance.