Mergers between companies can get complicated. First, there are potential regulatory issues, at both the state and federal level. These regulatory issues can involve multiple agencies and be quite complex, requiring the use of lawyers specializing in such issues. This, of course, can drive expenses up considerably. Further, there are potential issues arising from differences between the companies merging, including differences in corporate culture. All of these issues require consideration, and many companies, especially companies engaging in their first merger, might not even be aware of what the potential issues are.
Regulatory Issues Often are the First and Most Significant Hurdle in a Merger
Under federal law, the Federal Trade Commission or the Department of Justice, depending upon the industry involved in the merger, must be notified of the merger if three tests are met. These tests are required under the Hart-Scott-Rodino Act, or HSR, the antitrust law that governs mergers. The most important test under HSR regulations is the size of the merger. Depending on if the merger breaks a value threshold, then the federal government may need to be notified. If your merger is large enough to require reporting under the antitrust laws, you must make an initial filing of certain documents known as a 4(c) filing, referring to the section of the HSR Act that requires the filing.
If the DOJ thinks it necessary, you might need to make a further, much more extensive, production of documents in response to what is known as a “second request.” This is a request by the DOJ for considerably more information than what is provided in the 4(c) filing. Both the 4(c) filing and the response to a second request for information are almost impossible to make without assistance from antitrust attorneys. As hurdles to a merger go, the regulatory issues are both significant and expensive.
Other Issues Also Can Arise in a Merger
When your company is merging with another company, any number of problems can arise both before and after the merger. Most issues become apparent after the merger as the two companies attempt to become one. Usually, one of the companies in a merger is the acquiring company and one is the acquired. Rarely is it truly a merger of equals. Thus, in general, the executives of the acquiring company remain in place, and most of the job losses because of redundancy come at the expense of the acquired company.
- This also means that the acquiring company tends to drive the process of making two companies into one. This can result in a number of problems, including:
- The wrong people in charge of merging two companies can result in a clash of corporate personalities and cultures, resulting in “us vs. them” battles post-merger. Further, if the acquiring company is much larger, the acquired company’s personnel might resent becoming part of “The Man,” especially given the independent nature of start-up companies.
- Inadequate due diligence can result in major financial headaches post-merger. Paying proper attention to the financial examination of a merger partner can help avoid significant issues in the future.
- Over-optimistic financial estimates of post-merger performance likewise can cause problems. The merger of two companies with $10 million in annual revenues each does not mean that the merged company will have $20 million in revenues.
If You Are Contemplating a Merger With Another Company, You Should Talk to the San Jose Corporate Attorneys of Structure Law Group to Learn What Issues You Might Face
If you are preparing to merge with another company in the San Jose area, you need to know about the potential legal hurdles in front of you. You can get answers from the corporate attorneys of Structure Law Group at 408-441-7500 or through our online contact form.