Scaling Your Business Through A Merger.

Most SMEs (Small Businesses) don't consider a merger as part of business strategic models.

The question is; Would you consider merging your business with that of another entrepreneur?

A merger is when you combine your business with one created by another entrepreneur. 

Most people think that Mergers only happen between large businesses, but that is not true.

A lot of SMEs has done some really cool mergers in the past, and most  businesses would not be as big as it is, if they had not mastered the power of merging. 

Mergers have always given them an opportunity to make their businesses bigger, and faster.  Which is called *SCALE*.

You still need to understand the two key formulas of the entrepreneurial playbook: 

*INNOVATION PLUS MARKETING-COST=PROFIT*.

A business that has identified and reaches out and solves a human need, Scales as a result of the “3Ps”, and nothing else!

*Product.*

 *People.*

*Process.*

You might have a good *#Product* that solves a customer problem in an *#Innovative* way, but you don’t have the *#People* who can drive the other pieces, such as *Marketing*, *Process*, *Cost Management* and more.

This is when a merger comes in, to compliment the company with other elements that scales a business.

When you “merge” two companies, you are not looking for 1+1=2, but rather 1+1=4 or even 5!

There are seven (7) top questions to ask, when considering a merger.

1. *The Products*

2. *The Market* [customers] and the Marketing

3. *Innovations* going forward to create better and more *Products.

4. *The People*

(a) Who is going to be doing what, in the new company?

(b) What is their caliber?

(c) What is our ability to get access to the best people out there?

(d) Who are the top specialists that drive this business going forward?

(e) Leadership and management—Who will run it?

(f) How do you accommodate the founders, if they are still around?—Tough one!

(g) What about the board of directors?

5. *The Processes*

A bigger company requires more sophisticated management processes, from IT, to distribution, to HR, to financing!

6. *The Costs*

By combining the two companies, we must be more efficient. This means some people will probably have to leave, whilst new ones come on board.

7. *Finance*

This is a major *Skill*!

Many people don’t access money because they lack skills to raise capital, and it might be a good way to solve this problem by merging with someone else who has that skill.

*Conclusion*

In a merger there is usually no exchange of money. The owners of each company must agree on a valuation procedure to be followed. 

These are quite straightforward for a qualified Accountant to execute.

Let’s say business *A* is valued to be worth $25,000 and business *B* is worth 30,000, then business *C* the merged company is now worth $55,000.

The owners of *A* own 25/55=45%, and those of *B* own 30/55=55%, of the new company. 

The owners of the merged company must agree in advance who will be CEO, and who will be chairman of the board of directors.

This is captured in a proper agreement called a *Shareholders Agreement* (SHA)

Once signed, the courts will enforce that agreement, if there is a dispute between the parties. 

The new owners must agree in advance how the company will be organized after the merger, including who initially occupies key positions.

Mergers can be easily destroyed if the founders have big egos, as they require an acceptance that no one can now make decisions about the company on their own, this is usually the challenge of mergers.

The End.💓

By Awele Akunwa