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Although it is unusual in the world of franchising, mergers are an accepted way of achieving business stability and growth. As recently demonstrated by the Nissan and Honda merger, when conducted strategically, they can allow both companies to thrive.
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Why merge?
There are a multitude of reasons companies merge, including to gain a larger proportion of the market share, achieve economies of scale, expand into new markets, and reduce operational costs. They are particularly beneficial to companies operating in a crowded market sector who may otherwise lack the necessary financial prowess or leadership abilities to stand out from the crowd.
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How mergers can benefit franchises
Merging with a company that offers a complementary service can allow a franchise to broaden its customer base and appeal to a whole new demographic, grow its market share, and gain knowledge.
This can help an otherwise struggling enterprise to regain its footing, improve its offering and satisfy the demands of its consumers. It can also offer greater certainty to employees and shareholders who may otherwise begin to feel anxious about their association with an under-performing organization.
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How to enact a merger
If, following a thorough review of the business' operations, it is determined that merging with another company is the most practical way to achieve business stability, there are a variety of legal conduits that businesses must adhere to.
These include Section 7 of the Clayton Act, which aims to maintain a competitive environment, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976 that governs the pre-merger process. The company must also abide by determinations made by the Department of Justice and the Federal Trade Commission.
Before a merger can happen, the company's CEO must approach other businesses with whom they would like to merge, highlighting the benefits that a merger would offer to both companies. If a company accepts the proposal of a merger, a preliminary review must take place to satisfy due diligence. At this point, negotiations can begin.
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Things to consider during a merger
The most pressing points of consideration during a merger are how the company will be led and governed, the make-up of its corporate structure, how it will be branded, how operating costs will be shared, and how each company is valued as an individual entity.
Businesses that want to enact a merger should work with an attorney and financial advisor to ensure that any decisions made represent the best interests of the company and its franchisees.
