Entrepreneurial advice: Is merging your company a good idea?

In the current economictimes, mergers and acquisitions have become quite popular. Many companies are either proposing or receiving merging offers from competitorsin the industry or businesses in a similar industry.

But do mergers make sense? Well in many cases, a merger can be an excellent way toaffect a positive turnaround for your business if you are facing difficulties. A good example is when BTI founded by Peter Loftin, had to merge with ITC to help restructure and give life to two struggling companies.

If you go back to history, you will realize that successfulmergers are those that saw two firms having relatively equal footing. The minnow swallowing the whale, or vice versa in business in general, not a good thing. In particularcases, both firms could be doing only marginally well, and the synergies they obtain can make them rise to a higher level of success in their industry. The business owner needs only to ask himself asimple question – Do I want to own 100% of money-losing marginal operation or 50% of a successful, profitable firm. We’ll pick number two any day!

When considering to merge, the best way to look at it is in the form of apartnership. You wanting to dominate another firm or getting dominated by another is not a good thing.

But why would want to merge?

There are several reasons as to why a merger may be inevitable. In many cases,

  • Methods of distribution of sales can be improved, adding profits to the bottom line
  • One of the firms may have a stronger level of expertise in certain key areas of the business
  • Banks and other lenders will look more favorably on the combined entity

Another obvious consideration is the issue of size. Two smaller or medium sized companies might now be able to, when combined, take on a larger competitor in their market.

When two companiesmerge, that has to be some financial logic applied to the new ownership of the enterprise. The bottom line is that the new valuation has to make sense from who contributed what.

Many customers at a certain point in time find them up against the proverbial ‘wall .’ They can’t get the financing they need, there are production or distribution issues, and the overall marker or economy might be particularly tough for their particular industry.

A merger is a much-legitimized way of allowing your company to continue to prosper. But if a merger is too much for you, you might want to consider a partnership arrangement with another company. More often than not this is structured around a joint venture. If you are smart enough, you will realize that you can keep your own business intact, and not take on total risk in a new venture, but can share risks and rewards with a suitable partner firm.

The bottom line is that a merger or joint venture can be a substantial opportunity to lower costs and increase sales and market share. The decision is yours to makedepending on what is more suitable for your company.  In the case of BTI and ITC, Peter Loftin didn’t support the merger, but in the end, it ended up saving companies by enhancing their market position as well as strengthening the financialsituation of the combined companies.