Mergers between companies in Texas and other states could take several months or over a year to complete. A successful transaction generally requires a thorough review of each party’s existing business, product lines and debts.
Companies negotiating a merger could roughly plan on a completion timeframe of about six months, as noted by Forbes magazine, but in practice the time to closing varies widely. Depending on the merger’s objectives, the due diligence process can shorten or lengthen the time.
Elements of due diligence
A merger typically involves two businesses considering combining their organizations to improve revenue and cash flow. Due diligence is the process of checking all material aspects of the business such as financials, sales volume, contracts, liabilities, employment matters, assets, and intangibles such as IP and customer lists while negotiating how the newly merged company could operate.
In businesses with valuable IP, each company’s representatives look over patents, technology and other intellectual property that the other has to offer. If it appears that two businesses can increase their productivity, profit margin or market by pooling resources, it can lead to productive discussions regarding a transaction price.
However, the due diligence process may reveal debts, conflicts or other risks that could reduce the value of the proposed arrangement. One of the companies may need to reorganize its operations or management structure to accommodate a smoother and more effective merger.
Government review process
Depending on the industry, the size of the parties and size of the transaction, after entering a merger agreement, the parties may need to submit to a federal and/or state governmental review process. If the review determines a newly combined company could harm a state of healthy competition in the marketplace, the transaction may need changes.
The Hart-Scott-Rodino Antitrust Improvements Act mandates a review by certain federal agencies for mergers above a certain threshold. State law reviews may also come into play. When two health care facilities located in a rural region decided to merge, for example, the transaction required state regulatory approval. As reported by the San Angelo Standard-Times, a Lone Star State official may not approve the merger unless a review shows it would have a “positive impact” on the community.