Do your homework and take a good look at your business strategy before approaching a potential merger partner, says Ian Cooper.

In many ways, it's easier to describe how not to choose a merger partner.

Let's be clear, a merger is not a strategy in itself. Many mergers fail, usually with one party citing generic reasons such as 'cultural differences'. In fact, the real reason for failed mergers is usually that the firms involved didn't have a clear view of what they wanted to achieve or hadn't done their homework properly.

Understand your own business first

Before looking for a merger you need to be clear about your own strategy and why a merger is part of that strategy. It's important to understand what you're trying to achieve and how a merger will advance your firm. In order to identify the characteristics of a suitable merger partner it's essential to have a clear view of your own firm. Here are some key issues to consider.

Your strategic aims

Be clear about your strategy and whether you can achieve it through organic growth. If not, work out what's missing to help identify the ideal merger partner.

Your culture

What's the culture of your firm? Is it corporate, collegiate, partnership, 'eat what you kill' or something else? Understanding this will help you focus on who would potentially make a suitable 'partner' and also identify who is never going to 'marry' you.

Your strengths and weaknesses

Be honest with yourself – are you doing this from a position of strength or relative weakness? In reality, the truth will always come out and it won't help if your new potential merger partner feels let down – this will end in tears. But remember, if your weakness is, say, a lack of succession planning or management capability, this can be sold as an opportunity for your new partner and vice versa.

Expected benefits

Have a good idea of the potential benefits to another party – why should they consider merging with you? Ultimately, the challenge is to assess how two plus two will equal more than four, rather than something closer to three, and be able to articulate this to the other party.

A clear understanding of the above factors will immediately help you to focus on the characteristics of a potential merger candidate and eliminate a whole raft of firms with whom a merger is never going to work.

Money talks

Remember some basics – if your profits per equity partner (PEP) are a lot higher or lower than the PEP of your merger partner, then in an outright merger you're asking one party to dilute its PEP. This is unlikely to be acceptable. However, a merger partner where PEPs are comparable, with the possibility of shared cost savings, will be a more palatable proposal.

So, in summary, think very carefully about why you're looking for a merger, be clear about your own position and do some basic homework, and you'll be well on the way to choosing the right merger partner.

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