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8 Considerations for Your Merger Strategy

“Mergers & Acquisitions” is a phrase that gets used off-handedly, but those are substantially different transactions. An acquisition itself is a complicated enough process. But in a merger there are the additional components required to wholly integrate two separate businesses into one surviving entity.  Those complexities are why each merger engagement presents circumstances and challenges unique to the companies, and individuals, involved. Those complexities can be solved, but the path to the solution is often not apparent to the inexperienced or unwary. 

There are threshold issues a business owner should consider before jumping into the process of merging his or her business with another business. In the video below, two of our transactions experts, General Counsel, Rod Boutin, J.D. and Assistant General Counsel, Ericka Langone, J.D., discuss some of these important considerations.


You and the rest of the ownership team have decisions to make about the merger process itself, as well as decisions to make about the business you’ll create. These details should not be left for discovery and sorted out mid-process, but should be understood and planned for before implementing your merger strategy.

FIT The importance of finding the right merger partner(s) might seem like a given. But, before you make the decision, really consider what makes a good fit. After all, you’re going to have to work with these partners for many years to come. A particular merger combination might make sense financially, but it has to make sense culturally if it’s going to work–and if the business is going to thrive.

ENTITY TYPE & TAX ELECTION Closely examine the organic structure and operating intricacies of each business, and note the differences and what details might cause issues in the resulting company. Even if both companies are limited liability companies, for corporations under Subchapters C or S of the Internal Revenue Code, there are operational and structural variations within each entity species and tax election. Combining unlike entities could produce suboptimal tax consequences if not executed correctly. 

MERGER TYPE Lawyers and tax advisers generally described mergers as Type A, Type B, or Type C – with variances within each of them. Collectively, you should identify each owner’s goals for the merger and the resulting business. Choose the right merger structure and strategy to achieve every goal.

TAX IMPLICATIONS A thoughtful, comprehensive plan will anticipate and mitigate the tax realization impact of the merger. Advance planning is essential. 

RELATIVE OWNERSHIP & VALUE Post-merger, the relative shares of ownership may not be split evenly amongst the equity holders. How ownership will be distributed is derived from an agreed value scheme, which may be influenced by the appraised value of the original practices, the AUM brought to the resulting company, the percentage of the clients retained from each original company, the experience and standing of the principals, and the like.  

COMPENSATION Consider not only how you’re going to compensate yourself and the other business owners, but how you’re going to pay everyone else on staff – both licensed and unlicensed.  As a group, the resulting ownership should agree on a system of compensation that considers not only base pay for work performed, reflecting and adjusted for variables like tenure, responsibility, licenses, and experience, but also performance bonuses and production incentives.  All of which should be within a pro forma that reflects realistic cash flows and a commitment to the company’s bottom line profitability. 

MANAGEMENT As an ownership team, establish processes for operations and management. Businesses that emerge from a merger should be stronger and more valuable than the original component practices, and the resulting enterprise could very well include non-owner professional and support staff. Discuss and agree on operating procedures.  Know how these guidelines and processes will be applied to the ownership team as well.

DECISION MAKING Along similar lines as management, discuss and decide on how you will handle business decisions as they arise. No one can foresee the future, but it is certain that big decisions will need to be made for one reason or another. As a business owner, you are well aware that the business must adapt to its own success and growth, as well as to any surprises life is going to send your way.

SUCCESSION & EXIT Make a plan for the multi-generational structure of the resulting business.  How will you deal with an unexpected owner exit through death or disability? How will you handle the eventual retirement plans of any one owner?  Make sure to plan for everyone’s individual goals for the future and how they will be facilitated within the new business.

Remember, though you may want to work as long as you possibly can, the end will come in some form or another. It becomes a matter of: do you leave on your terms or somebody else’s?Furthermore, think about the implications of an exit on an owner’s family and estate. As Rod says in the video, “the ability to plan ahead and execute a process that provides for that ‘on my own terms’ is a great gift that a business owner can leave their family.”

A merger is a powerful growth opportunity that can help solve many pain points, including: continuity, succession, growth plateaus, and diversity. But if you don’t give the process – and your business – the proper considerations, you’ll end up wasting time and money, and could very well wind up doing more harm than good.

Discovering the differences between mergers and traditional acquisitions, as well as how to prepare for the process are only a couple of the common questions our clients have about mergers. Our Merger FAQ has further insight into mergers in general as well as the process you can expect when working with the FP Transitions’ Merger Team.  





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