2015 was the year of the corporate mega merger. Will 2016 bring more of the same? Just last week, the Hubble Space Telescope captured the blind collision of two galaxies, an event that’s known as a galactic mega-merger. Saturating one another, in time these two entities will transform into a giant, elliptical galaxy. While sounding cosmically futuristic, one should know that this stage often precludes what scientists refer to as the “red and dead” phase. Eventually the entire organization collapses from the inside out, falling victim to a self-created supermassive black hole.
Back on Earth, an excess of $4.7 trillion US dollars was spent in closing deals in the last 12 months. A smash success? Yes, if you conclude that each company involved has done its homework. Middle market mergers are fragile entities. Forces must recognize the dangers associated with underestimating the size, scope, restructuring and capital necessary to make any merger a success. Merger pitfalls include a lack of tactical awareness, a shaky management structure and a misalignment of corporate cultures. Proper resource planning can help businesses avoid these risks.
A key part of this planning is financial. Does your company have the necessary funding in place to ensure that the integration and assimilation go as smoothly as possible? Mezzanine funding, or subordinated debt, is often a safety-net that mid-market companies may use to insure not only that the merger materializes the way in which they plan, but that they have the power and strength needed to support their growth long-term. A real and present danger in M&A is for a company to overstretch its capacity both in acquisition strength and in post-merger management. Adequate capital by way of mezzanine funding can help the stars align in favor of merger success.