Managing a business merger: what you need to know

DEFINITION OF CORPORATE MERGER

There are several types of business mergers , the financial and legal consequences are different depending on the choice made. In general, it is the pooling of the assets of two or more companies to create another.

It should be noted that the merger of companies does not result in the creation of value. The three main types of mergers are:

1. Merger-absorption : This is the fact, for one or more companies, of selling all of its assets, including its assets and liabilities, to another existing or new structure. The acquired company is fully dissolved. Remuneration for the contributions of the absorbed company is made by means of contributions of securities of the absorbing company.
2. Contribution of securities : This operation is similar to the merger-absorption: a company A sells its assets to a company B. But the company that sells its assets is not dissolved, it becomes a subsidiary of company B. The shareholders of company A become shareholders of company B
3. The partial contribution of assets : the mode of remuneration is systematically made in shares of the buying company.

The choice of the mode of merger is made according to the accounting and tax interests of each of the parties.

Since 2004, and the adoption of Opinion No. 2004-001 of March 25, 2004 of the National Accounting Council, the merger is assimilated to an acquisition, the contributions must be estimated at their real value. This opinion tends to universalize business merger methodologies on an international level.

WHAT NOT TO DO

In 2016, in The Harvard Business Review, Professor Roger Martin uttered a pithy phrase: “70 to 90% of mergers are resounding failures”. Why such a low success rate? It seems that companies always make the same type of mistakes:

• First, a blatant neglect of cultural integration. We cannot rid the acquired company of its initial operating logic
• Management’s fear of losing responsibility
• The lack of importance given to middle managers, the fundamental link between the management structures and the base of the pyramid. Neglected, middle managers lose all confidence in the success of the merger.