• Want to Know What a Merger is like? Get Married
  • January 6, 2014 | Authors: Patricia E. Farrell; Alexis Unkovic McKinley
  • Law Firm: Meyer, Unkovic & Scott LLP - Pittsburgh Office
  • No, we’re not talking about two people in love, we’re talking about two companies that merge or form a joint venture. Just about every stage of merging, acquiring another company, or forming a joint venture has a parallel in courtship rituals. Viewing the partnership of two companies through the prism of matrimony can cast insights into both the process and the pitfalls that stand in the way of making a marriage of companies work.

    First Love: Getting the Idea
    The parallels with romance are uncanny for getting the idea to merge, buy/sell a company, or enter into a joint venture. Sometimes the executives of both companies have known each other for a while and realize that changed market conditions or finances make a “marriage of companies” a good idea. But one business will often recognize that it needs to join forces with another company and then go on a marriage campaign-making a list of likely targets and then researching and contacting each. Other times, the introduction is made by a friend, such as legal counsel or an outside board member. Often one or both businesses use the equivalent of a dating service or matchmaker by engaging a business broker.

    The Proposal: The Offer Sheet
    Unlike a marriage of people, in a marriage of companies, the proposal always comes with a prenuptial agreement, called an offer sheet that lays out the terms of the deal. In an acquisition, the buyer typically puts together the offer sheet, while in a joint venture, either of the parties might do so. Like a prenup, the final terms are subject to negotiation.

    Learning the Secrets: Due Diligence
    One lover often stumbles upon the secrets of the other: a teen-aged arrest, the brother in jail, past relationships. Learning about the other’s secrets occurs in business courtships, too, but as a structured process. Once a deal is in place, both sides conduct a thorough due diligence review of the other company. A buyer’s due diligence, for example, includes financial structure, regulatory and tax liabilities, cash flow, contractual obligations, intellectual property assets, competitive analysis, environmental and safety risks, and labor relations, all on a confidential basis. Due diligence identifies all the risks of the deal and can lead to a renegotiation of terms.

    Planning the Wedding: Preparing the Documentation
    The documentation in a merger or joint venture might test the patience and attention to detail of any wedding planner. Besides the contract to merge, acquire, or create a joint venture, there might be other agreements regarding use of patents and trademarks, equipment and real estate purchases or leases, labor agreements, and termination agreements. When the deal includes refinancing or new financing, the loan documentation provides another layer of paperwork, all of which must be created and thoroughly reviewed.

    The Wedding: The Closing
    A closing is much simpler than a modern wedding, even if the anxiety in the air is much the same whether it’s two people or two companies at the altar. But when two companies marry, better bring a full pen: there will be a lot more papers to sign.

    Living Together: Combining Corporate Cultures
    The end of courtship marks the beginning of living together. Just as spouses adjust to the habits, predilections, and beliefs of the other, so should companies. Does only one of the companies allow telecommuting? Does only one side have a union, or is there a vast discrepancy in wage-and-benefit packages between the two companies? What are the advantages and downsides of integrating computer systems or the sales force? Many mergers fail because the companies did not consider corporate cultural issues before signing the deal.

    During a courtship, many people have confidants in whom they confide their plans, fears, and aspirations. The confidant during the stages of a merger, acquisition, or joint venture comprises a company’s team of attorneys. The attorneys prepare the offer sheet and other documentation, conduct the due diligence, are often part of the negotiation team, and are usually present in the conference room when the final contract is signed. Legal advice on union contracts, employment law, intellectual property assets, vendor contracts, tax issues, and regulatory matters is also essential in considering how two corporate cultures merge to become one.

    No company should expect to make a marriage alone. A business owner who represents her- or himself is asking for a messy and expensive future. In the passion of the moment, a business needs a level-headed advisor, someone who has been through the process before and can guide it to a happy close.