What issues increase the chances of a merger failing?

On Behalf of | May 29, 2023 | Uncategorized |

The decision to combine two businesses can be beneficial to both organizations. Mergers can increase the overall market share of an organization and expand its pool of intellectual property and talent. However, the process of navigating a merger with another business is fraught with risk.

For example, workers who are laid off might claim wrongful termination on the basis of discrimination. One of the businesses could be at risk of a product defect lawsuit and open the other up to liability. There is also always the possibility that the merger will fail. These operational issues increase the likelihood of a merger failing.

Incompatible cultures

Mergers typically mean that teams from two different companies will have to work with one another, and sometimes they will even need to share facilities. Unfortunately, very different corporate cultures can lead to a clash between workers at one of the merging companies and the other, resulting in reduced productivity and increased worker turnover rates.

The loss of crucial talent

Mergers often mean major changes for a business, and some employees don’t like how unpredictable operations become during such transitions. They may choose to leave the company to pursue a job that seems more stable elsewhere. Companies typically anticipate losing a noticeable percentage of their workforce, which can be beneficial because it ultimately reduces the number of layoffs and terminations required when combining the businesses. However, if too many key workers leave at once or in a short period of time, the company may struggle to operate as it should and could face disruptions that damage its reputation.

Poor transition planning

The time leading up to and immediately after a merger will be very volatile for a company. Both organizations will have significant expenses related to the merger. From updating employee manuals to combining facilities, the expenses involved can be significant, even if they will eventually taper off and lead to reduced combined expenses for the resulting organization. Businesses need to plan for every step of the process based on their current operations.

Anticipating challenges that often arise during mergers can help executives and managers at businesses to better ensure that their interests remain protected as they navigate consequential transitions. Seeking legal guidance is often a good place to begin.