The ins and outs of mergers & acquisitions; important considerations in forging new relationships.

• Author: Drage, Nathan
• Position: Legal Briefs

WHILE there are many metaphors that could describe the type of experience a business merger or acquisition provides, one that seems most applicable is that of "family." A corporate merger is quite similar to a marriage, and the acquisition of a business has many parallels to adoption. Each of these business transactions results in not only new relationships on a personnel level, but also on an "entity" level. Regardless of which type of these your company becomes a party to, there are common issues in all mergers and acquisitions that you should be aware of, plan for and resolve.

Artificial Life

First, we have to understand what a "business" is--an artificial being. Secondly, we need to understand that each of these artificial beings was given life under certain conditions and rules. These conditions and rules are set out in the corporate statutes of the state of birth (incorporation), and the Articles and Bylaws of the company. Management (humans) of the company are given the responsibility of seeing that the company develops and exists under those conditions and rules. During the time of its artificial life, those rules may have been ignored, bent or broken by the company. Or maybe no laws were broken, but the business diet was poor and exercise nonexistent. Consequently, this artificial life may have developed severe complications, sicknesses or addictions that are not easily detected.

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Family of Companies

Whether you are marrying (merging) or adopting (acquiring), you certainly want to be concerned about your future spouse, parent or child. In the case of human life, as responsible adults, we take family members to the doctor for a thorough check-up. In the case of artificial life, such as companies, we turn to attorneys and accountants, and perhaps other specialists such as business valuators, market analysts or management specialists. Regardless of who is involved, the key is to find out as much as possible so you can know exactly what you're getting your company into by creating a new "relationship." Scrapes and bruises can be patched up. Broken bones can be reset and given time to heal. Even deep cuts can be sewn shut. All the foregoing involve varying degrees of time, energy and money. But what about infectious and incurable diseases? Artificial persons (companies) can have those too. You, as a member of a management team, will have to decide how much illness, if any, your company can handle. It's not unusual...