Amid a global pandemic, the economy continues to struggle toward a rebound. Companies across multiple fields and industry have been struck by the financial and structural complications. Abrupt workforce changes, supply chain issues, and sales decline put many companies on the verge of bankruptcy. Opportunities for mergers and acquisitions were at an all time high over the past two years. Although the opportunity for financial gain is tempting, there are serious considerations associated with corporate mergers.
Orchestrating a Corporate Merger
Mergers and acquisitions do not just happen overnight. They require months, sometimes years, of planning and development. Depending on the reason for a merger, companies may hire one or more consultants to assist with the transition. These specialists help organize both entities in preparation for the merge.
The business interests of all parties is taken into consideration. Likewise, consultants work with Human Resources staff to develop communication regarding the merger. While some employees will remain in their existing roles, many others will have to take on new responsibilities or may be terminated. These delicate subjects must be handled with sensitivity and tact.
Preparing Financial Statements
Mergers come with many strings attached, including debt obligations. The majority of mergers and acquisitions occur due to financial strain. Both companies may request an independent valuation to get the full picture of their financial health. Accounts receivable, recurring revenue streams, and stock holdings are all considered positive revenue entries. Accounts payable, retirement plan contributions, real estate obligations, pending lawsuits, equipment rentals, and unsold inventory may be found among the liabilities of a target company.
The Bottom Line
All things considered, the purchasing company takes on every debt and liability of the target company when they acquire a business by stock purchase or other means. Due diligence before the purchase is critical, because the debt liabilities are transferred to the purchasing company immediately upon the completion of an acquisition. Even a small amount of research beforehand can avoid unpleasant surprises later. The totality of debt transfer includes debts and liabilities that may not have been disclosed prior to the sale. Essentially, the transfer of title or ownership of a business is complete and final in the mind of creditors.