Mergers can offer many benefits to two smaller partnerships with good cultural alignment, including sharing costs and resources, access to economies of scale, and reduction of competition.
There are a host of commercial issues that one has to be aware of when contemplating a merger of two partnerships. An in-depth analysis of the two businesses is crucial, as is ensuring that required documentation is completed correctly. The process of merging will inevitably require many moving parts, and you’ll be better served by having a knowledgeable legal team in your corner to help you address the commercial considerations.
Commercial Considerations
A number of commercial and logistical issues need to be addressed and key decisions made. Among the most important examples are:
Premises
Do you move all operations to one location? Would one make more sense than the other? Is the move likely to result in the loss of key clients? Do you pick a totally different location? Is one property freehold and another leasehold? The answers to these questions will depend on the key drivers for the merger. It may make sense to move to a new location if the aim is to tap into a more lucrative location, but neither business is already there. If the aim is to expand facilities and services while reducing costs, and one business can accommodate that, then moving to single premises would be prudent.
Team
There will inevitably be some restructuring of employees as a result of a merger. Maybe this only requires an organisational shift or some employees need to be made redundant. Those team members whose roles are being duplicated should be informed as soon as possible. There will need to be internal discussions between the two business leaders and an open dialogue with the employees involved.
Branding and philosophy
Whether one brand is adopted or a new one is created, managing such changes and ensuring consistent branding across both companies will create logistical challenges. In merger discussions, cultural differences can often emerge, making alignment less straightforward. There may be a need for negotiations on alignment if competing interests and views exist.
Financial structure
The division of current assets, the sharing or handling of old and new revenue, and the allocation of costs will all require commercial discussions and negotiations. Financial expectations are often the most difficult to agree upon.
Insurance and other obligations
In addition, it is important to discuss with your insurance broker how the merger will affect your liability. Professional insurance and property insurance will likely need to be updated. There may also be implications for licensing and practice related fees too.
Legal considerations
The legal path to a partnership merger will involve several stages due to the breadth of issues to consider, risk assess and agree upon. Examples of the key stages include:
Heads of terms
As soon as you have reached a loose agreement to merge, your legal team will assist you in negotiating critical terms affecting the merger in order to prepare a heads of terms. This will outline the parties’ clear business intention and lay the foundation for all other stages and documentation. The heads of terms can also guard against disputes down the line too.
Tax position
A tax specialist should be consulted at an early stage to assess your tax situation. The better to be forewarned than not, especially if it turns out merging your businesses won’t provide any tax benefits.
Due diligence and negotiations
Prior to or during the completion of the heads of terms, there will be a number of points to discuss or investigate further. It is important to document any agreements and finer details.
Documentation stage
Once the merger has been commercially agreed upon, our legal team can assist with the documentation and practical elements of the merger. As in previous stages, this may require input and expertise across property law, tax law, commercial law, corporate law, employment law, to name a few.
Regulatory
Partnerships often operate in regulated sectors where approval is required, for example accountants and architects. Prior to the merger progressing, any regulatory authorities should be consulted to check what, if any, approvals are needed.
Documentation
Following the heads of terms, a typical suite of documentation for a partnership merger could include termination of old partnership agreements; new partnership agreements; new employment contracts; supplier contracts; conveyancing and property leases; financing arrangements; warranties and representations from the other business if there are critical ones upon which the merger relies. Our experienced team of lawyers will work closely with your accountants to ensure all the formalities are correctly completed on a timely basis.
How we can help
A partnership merger really benefits from a ‘one stop shop’ in legal representation. From beginning to end, our team of experts across corporate, commercial, property, and employment will provide you with comprehensive, streamlined advice to ensure that your partnership merger is successful.
Visit us here to find out more, or get in touch to book a free consultation.
