Are you thinking about merging your company with another one and are looking for consulting regarding this M&A transaction? Then you have come to the right place. For the M&A transaction merger, I simulate the company before the intended merger and after it, together with its environment, of thousands of possible paths. After the simulation, I can calculate the marginal rate (quota) you should at least have in the merged company.
A company merger is a process where one or more independent companies are merged into a new one. The shares, a former owner should have in this newly merged company, can be calculated by using a method for business valuation.
Consulting for the merger of a company especially includes an environmental and a business analysis of the companies to be merged, a business valuation and support during the M&A-transaction merger. A major challenge in a company merger is that a joint strategy has to be developed, and harmonisation has to take place at various levels (accounting, merchandise management system).
In the case of a company merger, the company value will be calculated by a model of the approach of functional business valuation and is called decision value, which represents the minimum marginal rate (quota) one should have in the merged company. For reasons of argumentation also other methods for calculating the business value (such as the DCF method, or the capitalised earnings method) should be considered.
The main objective of merging a company is achieving synergy effects. In production, one company might use the technology of the other one. In the administration or the sales department, the cost structure might be streamlined. Moreover, the negotiating power might be stronger and better prices can be negotiated with suppliers and customers. In marketing, double cost structures might be eliminated. Maybe a merger enables a company to go international in the first place.
The causes of possible synergies can be widespread and are not fully covered here. Next to synergy effects, sharing responsibility (relief) and additional expertise through more shareholders and CEOs can also be a reason for a merger. Most conflict situations are not dominated (optional) but there are also dominated (forced) ones which might be caused by the law.
Importantly, the objectives have to be set correctly and other alternatives like organic growth or simply acquiring a company have to be considered.
A merger is more complex than the sole acquisition or sale of a company. For this reason, it is important to analyse the businesses and their environments. Afterwards, each company should be simulated separately and then as a merged company with a joint strategy. The synergy effects have to be realistically quantified. This process is complex and for example, the I&C technologies, the accounting and the merchandise management have to be fused.
Different from an acquisition or sale of a company, the decision value in the case of a merger is not expressed as a price but rather as a marginal rate (quota). How many shares does one have to get at least for not being in a disadvantageous position? For the business valuation, as described earlier, the business and its environment have to be analysed and projected both for the non-merged companies and for the merged one.
The decision value in the case of a company merger is calculated by the approach of functional business valuation and is a marginal rate (quota), while argumentation values can be calculated using different methods which are more or less theoretically sound. The calculation of an arbitration value is useful for distributing the profits of a company merger fairly between the given parties and can be calculated if requested.
The conflict situation is likely multidimensional. To put it more precisely, the points of negotiations are not only comprising the future marginal rate but also a lot of other aspects, especially in the areas where synergy effects can be exploited.
Finally, the valuation model also includes your withdrawal preferences, other cash flows and taxes. The decision value will be calculated as a marginal rate. The decision value will be a marginal rate (quota). However, it should be stated that there can also be a combination of a marginal rate and compensation. This might be useful in the case where a minimum marginal rate, e.g. a blocking minority of 25% is required, or respectively an absolute majority of 75% should be avoided.
The calculation of the company value is simulative and a lot of scenarios are taken into account.
In the following, some important facts about law and taxation are shared. During my studies, I systematically gained profound knowledge in tax planning. This is absolutely vital because taxes and the law have a major impact on the M&A transaction merger.
Nevertheless, the possible constellations are manifold and particular in the international context it gets complex. For this reason, even if I have an in-depth understanding, it is important to include professionals in taxation and law. Often, it’s reasonable to rely on the experts the companies worked with in the past. Those already know the legal history. It unduly complicates M&A transactions if the legal consequences are not fully understood, and avoidable mistakes happen.
My main focus is on providing you with a qualitative business valuation and your support during the M&A transaction.
The negotiations during a company merger are complex because they are often multi-dimensional. There can be a lot of points of conflict. If personnel costs can be reduced, the question arises on which side this is going to happen and how many have to leave. What will be the new areas of responsibility for each employee? Which real estate is needed in the future? How does one avoid possible conflicts, particularly on the shareholder level? It is vital that a detailed joint strategy is developed before the merger is executed. During negotiations, I will be on your side. It is important that alternatives like organic growth or a simple acquisition of another company are kept in mind.
Also, mind the calculated values and, if new points of negotiations arise, let the valuation model be updated. It’s an iterative process. However, during the discussions, it can also turn out that the merger might bear too many conflicts. Then one should let go of the merger. Breaking up negotiations is often hard. This is true because one has already taken a preliminary decision.
After finishing the negotiations successfully, a tax advisor and lawyer should look at the results and prepare the necessary legal process. My focus is on the calculation of the decision value and your support during the transaction. For taxation and law there are other experts and relying on them is good practise. Consulting is especially important when legal entities are transformed and transactions take place in an international context.