Starting Out: Mergers & Acquisitions (Part 1)
Starting Out: Mergers & Acquisitions (Part 1)

Think Big Picture

Adding a new company to your business portfolio can be the change that sparks massive growth for your business or triggers the decline of eventual financial ruin. Fortunately, with thorough research and guidance from experienced legal counsel, the risks of buying a company or merging your company with another company can be significantly reduced.

The first question to ask yourself when considering a merger or acquisition is how does this transaction fit into my overall business plan?  Is this transaction able to achieve my 5- to 10-year growth plan?  These are strategic, useful questions to ask yourself because there may be other ways to accomplish a desired outcome without undertaking a merger or acquisition.

Consider, for example, what resources are needed to make this happen and the pros and cons to this venture and the impact and desired results that you could have as a result.

By way of example, consider this approach when acquiring a new professional sports player. In 2011, the Anaheim Angels signed superstar First Baseman Albert Pujols.  He was fresh off of a season where he received the 5th most votes for Most Valuable Player in all of baseball, and was able to negotiate and enter into a massive 10-year, $240 million contract.  While that may have made sense in 2011, as he aged (he was already 31 when he signed the contract), he struggled with injuries and his performance significantly declined over time to the point where he has generated only negative wins above average since 2015. Due to this contract, the Anaheim Angels have paid over 100 million dollars for a statistically below average player and are on the hook for another $29 million next year. When negotiating this deal, it is curious whether the future results of a to-be 41 year-old player were considered.

Next, consider the goals that you hope to accomplish through the merger or acquisition. This may include increasing market share (through an existing brand recognition or integrating key personnel into your team). Two high profile examples of this are Facebook’s purchase of Instagram and Uber’s (owner of Uber Eats) purchase of Postmates. Both of these companies recognized that their existing offerings were unable to lure away a significant share of consumers from these companies and that the best way to increase market share was to simply buy them out. An ideal candidate for an acquisition or merger would be a company offering services that complement your existing holdings and has a strong hold on a segment of the market (young people for Facebook, the Southwest United States for Uber) that your company may not be doing as strongly with.

It is not always easy to figure out what makes sense for your short- and long-term interests. There are plenty of deals like the Albert Pujols’ contract that can easily be imagined to unfold better than they likely will. That is why it is important to have professional advisors who can help conduct due diligence so that you can make the right deals to achieve your business objectives. The professionals of Jacko Law Group, PC are ready and able to use their business and legal counsel experience to help you make the best deal possible. For more information, contact us at info@jackolg.com.    

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