Virtual Mergers: The Big Idea Whose Time Is Now!
More and more these days, the Virtual Merger is coming to the table as a highly workable option, as the growing record of success continues to highlight the distinct advantages such an arrangement offers.
A decade ago, conventional mergers were feasible only to companies who could afford the legal teams and due diligence, along with the considerable logistics of relocation and negativity of redundancy. However, a Virtual Merger bypasses all of these roadblocks with ease and provides quick growth options for those companies who cannot consider a traditional merger.
In straightforward terms, Virtual Mergers are agreements drawn up between two or more companies with all of the benefits and very little of the cost or potential downsides of traditional mergers.
Agreements are made between two or more like-minded companies who are viable in their own rights, yet are simply too small by themselves to attract ideal buyers.
The contract is created around articulated goals for the joint use of specific assets (technology, market share, intellectual properties, physical facility, etc.). Literal relocation, personnel shifting or formal ‘integration’ is not necessary.
The only new legal entity formed is strictly for management of the merged assets. Each participating business will have an equal vote in how the cooperation of assets will be run. Otherwise, each company maintains financial and operational independence.
Arrangements are made by agreements that address what the stakeholders want, not by traditional legal procedures and standards. In this way, costly and complex expenditures of due process are greatly reduced. Shareholder approval is not required.
The synergies that are now unleashed by the combined assets serve to expedite the sought after growth. Shared plant operations can double production or expand the products line; pooled territories means instantly wider market share. Intellectual capital can serve to further spur innovation and gain market share. The rapid scaling brings up revenue much more quickly than organic growth can generate.
The primary genius of such an arrangement is that private equity and shadow investors can now be tapped. Too small to be considered individually, several small-to-medium size ventures of 2M-3M turnover could combine revenue and profitability into a single organization of 10M, a figure at which many more investors could be persuaded to show interest. The strategy of the merge makes the funding attainable.
When viewed this way, the Virtual Merger becomes a powerful tool and a powerful solution. In the hands of the individual or small team that has the wherewithal to facilitate the merger and the exit, concentrating on the simplicity of a virtual vs. a traditional merger will provide quick growth and accurate exit projections. The incentive for small and medium business owners is also considerable, as worthwhile growth is made possible and the end game is much more predictable.
Courtesy of the Baby Boomer generation, there are numerous family-owned companies whose elder guard is wanting to retire yet cannot establish reliable succession in the family. There is also a vast array of small companies looking to grow faster than organically. Most of the businesses in the country fall into one or both of these two criteria.
I have had the opportunity to challenge many an individual to seriously consider a Virtual Merger. I speak with business owners who are seeking to grow an existing company but finding that organic efforts are not possible or not producing, for any number of reasons. Other entrepreneurs come to me to verify the viability of facilitating such a merger toward realizing a healthy profit to sow back into their own interests.
In speaking to the former, I am able to assure the small-to-medium sized enterprise owners that not only is growth and exit possible, a three year exit plan could be entirely within reach. In the case of the latter, I caution the curious that virtual mergers require all the savvy of a traditional high-dollar merger, and more, as fewer people will be wearing all the hats. But by scale, the virtual merger can quite handily be managed by a very small group, or even one operator. The enormous availability of businesses to work with and the accessibility of funding makes the Virtual Merger, in my opinion, a no-brainer.
