This article are provided for information purposes only, and are not intended as legal advice.

Growing a business – should I merge with a competitor?

August 5th, 2009

Many business owners want to be the master of their own destiny – controlling their own business.  But if the business is struggling or marginally profitable, do you continue operating the way you are and hope things turn around or do you look to merge with another firm.  If you decide to merge with another firm then who is on top and who is running the companies.  I have seen all too often in the service, a merger of consultants and accountants ends up being a takeover.  The majority of people from the smaller firm leave and the clients end up staying with the merged entity.  There are non competition agreements or contracts stating that the partner has to stay with the combined firm for X number of years.  After that, the customers view the merged firm as their consultant/accountant and not the individual partner.  If the partner leaves, the client usually, but not always stays with the bigger firm.


In mergers, the employees may be paid differently, one firm will pay more than the others.  The workload may be different, for the same level of staff, the capabilities may be different and the pay supports the additional work.  The merged firm looks at costs and sometimes makes it a priority to get rid of the higher paying employees.  They do not consider who will look after the clients – the partner is locked into staying with the firm therefore the merged firm does not care if the staff leave.  Clients care and that is important but many firms do not look at this.


Some clients will stay a year and see if the service has changed.  If they wanted personal service and went to a small to mid size firm but when that firm merged into a larger entity, it lost everything that it offered – personalized service.  Technically the firm could provide everything and more but the most important reason for selecting that size firm was service.


Don’t get me wrong, I believe mergers do work but you have to make sure that they work internally also.  If the internal merged firm is happy, then the customers will be happy.  If you merge to create synergies of scale and offer a better service, faster service, then the customers will not care.  If you look at the bottled water industry.  They deliver water to your business.  If another company was acquired by the bottled water company, you still get the service, in fact you may get delivery twice a month instead of once a month because the old company did not have enough trucks to service your area properly.  As a result, your service could improve and you would be happy.


Many years ago, three owners of small alarm companies, each losing money wanted to merge.  It made perfect sense to merge, you could get rid of three locations, consolidate into one location, get rid of having 3 firms staffing their facility 24 hours per day.   The merger would have taken three money losing businesses and made one larger profitable business.  The problem was that it did not need 3 bosses.  The three owners could not agree on who would be President and the roles of the other two business owners.  As a result the merger which was an excellent strategic move did not happen.  All the companies failed and do not exist today.  Did egos get in the way of a good business decision?


All too often, people look at what is good for you and not for the company in the long term.  It does not matter if you are the owner or not.  I want independence, I want to come and go as I please and not report to anyone.  The fact that the business may not exist in a year or two is irrelevant in their decision.  Being a good businessman means that you will look at all strategies and keep re-evaluating where your business is heading and what do you have to do to keep it going and being profitable.  Owning a smaller piece of a larger business is better than owning 100% of a bankrupt business.

Filed under: Business strategies — Gary Landa @ 8:46 am

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