The Brilliance of a Virtual Merger
In an economic climate wherein establishment and expansion of one’s place in the market is significantly accomplished by mergers and acquisitions, a new twist on M&A has recently become apparent, which carries potentially exponential results for individuals and small companies. I am talking about Virtual Mergers.
Due to the high cost of due-diligence in mergers and acquisitions - the banks, accountants, consultants and lawyers - large public companies won’t typically make the effort to leverage the price earnings ratios of private companies unless they can garner $10M or more.
However, the savvy smaller operator could conceivable realize a six-or seven-figure commission from such a deal, without even having invested a penny of personal capital. Smaller companies could gain all the benefits of a physical merger, but with only a fraction of the headache and effort associated.
In a virtual merger, separate companies contract around arrangements that create the functional but not the legal or necessarily permanent structures of a traditional mergers. No new entity is created, nor the attendant overhead considerations. The two (or more) companies remain separately existent, maintaining respective leadership and shareholders, while mutually taking advantage of the best of now-combined assets, operations, technologies and knowledge. Both entities are now able to leverage particular advantages that each other’s jurisdiction offers, such as tax laws. A virtual merger would eliminate the need for trying to assign value and thus acquire such assets as intellectual property. It would also preclude the need for shareholder approval.
Legal definitions and guidelines are much less developed for virtual mergers than for traditional mergers. Generally speaking, the basic conditions for a virtual merger are:
Articulation of the goals to be achieved by the merger.
Development of a body responsible for cooperative management of combined assets, per the intended merger goals.
Built in permissions and parameters concerning withdrawal, recovery of contributed assets or a buyout, if necessary.
The drafting and filing of a Letter of Intent and a Memorandum of Understanding could conceivably be all that is required, as opposed to the masses of documents required for a traditional acquisition, merger or joint venture. The downside to such arrangements at this point would be lack of legal precedent or even of enforceability should there arise a disagreement that exceeds the good will and common goals that brought the merging parties together.
For smaller companies without the leverage to grow organically or accomplish a buyout, a strategic virtual merger could be the means for exponential growth. Such a venture could even serve as the means to bring an operation back from the brink of bankruptcy, or as the vehicle of succession for business owners who wish to change position relative to their company.
A creative entrepreneur able to convince a handful of $1M - $2M revenue companies to engage in a virtual merger could create a $10M revenue company. In the cases where the merging parties agree to sale, the arbitrage between private sale and public offering could realize upwards of 20 times the profit.
For those well versed in acquisitions and mergers, the idea of a virtual merger presents a tantalizing picture. Add to this the idea of such a transaction based in cryptocurrency - and an even more appealing picture emerges.
I am convinced that many types of win-win solutions can be drawn up in virtual mergers. Mergers and acquisitions need not be hostile on the one side and helpless on the other.
