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3 common risks that undermine the benefits of a merger

On Behalf of | Jan 31, 2023 | Business Law

Business growth and development can be very challenging, and companies sometimes struggle to keep up with the increased demand for their products. Other times, they may have a hard time pivoting to meet changing consumer standards.

A merger can be the perfect solution for a company that needs to grow or change rapidly. A merger gives an organization access to intellectual property and facilities currently used by a competing company. They can expand a company’s production capabilities and reach very quickly.

However, there are certain, known issues that often arise during mergers that can significantly limit how beneficial they are for your organization. What sorts of challenges undermine the usefulness of a merger for the companies involved?

1. The exodus of top talent

Unfortunately, mergers and acquisitions tend to make employees nervous. After all, changes to the company’s organizational structure often mean changes to a worker’s compensation or their future with the company. Some workers, even those assured that they will be able to keep their jobs, will start looking for alternate employment as soon as they know that their company is merging with another business.

2. Increased operating expenses

Obviously, absorbing the facilities and employees of another organization will significantly increase how much it costs to run your business. Companies often fail to address the major expenses likely to result from combining two existing companies. If there aren’t adequate resources set aside or if the companies don’t streamline their operations quickly, the cost of running the two merged businesses simultaneously might lead to insolvency.

3. Conflicts of leadership

Whether the respective human resources managers from each company take an automatic dislike to one another or the two organizations turn out to have very different corporate cultures, there can be interpersonal conflicts that affect morale and daily operations.

There are many reasons why leaders at the newly merged companies may have interpersonal conflicts with one another. Whether they see each other as competition for the best roles in the new, combined organization or they simply can’t understand how the other team did business, the possibility exists for workers to butt heads with one another, possibly causing conflict across multiple departments or demanding the time of management and human resources to properly resolve.

Businesses planning mergers can reduce the conflict and disruption such transactions have on organizational operations by acknowledging and planning for those challenges ahead of time. Having proper support and guidance when planning major business transactions will take out some of the risk and frustration often involved in business management.

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