Before you alert the press: How to evaluate merger opportunities for the greatest compatibility

Before you alert the press: How to evaluate merger opportunities for the greatest compatibility

The primary reason driving most mergers is to gain some type of advantage or to stave off some sort of disaster. The only way organizations can decide if a merger makes sense is to evaluate whether it significantly advances their vision and strategic objectives. Since these strategies are, presumably, designed to increase the ability of the organization to deliver against its vision, their accomplishment should, by definition, increase profitability.


A merger can be viewed through the following lenses

Profitability: this is the perspective of the owners, or shareholders, who are seeking a specified financial return

Their issue is whether the potential for an upside profitability increase is greater than the downside risk of profit decrease. Unlike corporations where shareholder value is the overriding criteria of success, potential partners have interests in a merger from perspectives other than profitability — but profit plays a dominant role.

Values: this is the perspective of the stakeholders

The people who come to work at the organization everyday — Board members (who have a dual role as stakeholders and shareholders), associates, staff, as well as vendors and clients (who have a dual perspective as stakeholders and members of the marketplace). Culture is a major issue for group training companies but comparative cultures usually get glossed over in favor of economics during merger discussions. Therefore, the degree to which the firms’ respective operating strategies deal with compensation systems, staff retention, how people treat each other and similar matters are clearly measures of how stakeholders will view the merged firm.

Capabilities: This is the perspective of the marketplace

How do clients, potential clients and competitors view the merger? Strategies that involve building practice areas and expanding geographically are largely designed to influence how the marketplace views the combined organization. It is the perspective of the marketplace and whether it understands and accepts the rationale for the merger that dictates whether a merger makes sense.

Asset base: This is the view of the accountants and bankers

Would the merger enhance the asset base of the organizations? Does the merged organization improve the quality and depth of both organizations’ Board, staff and clients? What does the merger do to the combined organization’s capitalization and its ability to create debt in order to grow and launch strategic initiatives.



Profit Margin

Profit margin is a function of expense control and work style. While organizations like to devote large portions of merger discussions to cost containment, rarely are there significant differences in margin that cannot be justified by geographic location and multi-office costs.


Realization is a measure of institutional business practices. Organizations with routine write downs or with slow-to-bill and slow-to-collect cultures tend to be less entrepreneurial in their views as a business.



Values deal with subjective issues that may often be termed as cultural. While there are wide ranges of factors that fall into culture, four are dominant: vision, strategy, inclusion and compensation.


Vision represents the degree to which the organization has a clear self-image of what it is and what it wants to be. Having a strong vision usually requires having a visionary leader who actively communicates that vision in a clear and consistent manner.

In evaluating a potential merger, vision is perhaps the most important area of compatibility, yet it often gets glossed over in favor of profitability. The test of vision is not what an organization’s mission statement says, but how well the vision has been communicated to the organization’s stakeholders, how well they accept the vision and whether the organization’s actions are consistent with the vision.


Strategy is whether the organization has plotted a course of action to achieve its vision. An amazing number of organizations have an aggressive vision of the future but no clue about how to fulfill that vision. Whether two organizations considering a merger have strategies, and how one strategy relates to the other, is an important point of evaluation.


Inclusion is often viewed as a sensitive issue, but it can represent a huge cultural crevasse between organizations. In large measure, inclusion refers to the openness that is present in an organization— how well it shares information and goals with its stakeholders and the degree to which stakeholders feel they have a voice in the organization’s destiny.

Inclusion is sometimes characterized as democracy versus autocracy and, indeed, that is a significant aspect of inclusion at the senior executive level. Sharing objectives, strategies and key financial information at the line management and staff level, however, is equally significant.


This refers to the criteria on which compensation is set, who establishes compensation and whether compensation information is shared among all staff.



Market view

Practice is the marketplace’s view of what the merged organization does and how well it does it.


This refers to whether an organization is viewed as local, regional, national or international. While there may be some difference between the perception and the fact of an organization’s footprint, that difference is rarely as broad as it can be with the organization’s practice.


Involvement is the marketplace’s recognition of the degree to which an organization is involved in the community, industry activities, politics or other pursuits outside the group training industry.

Marketing Aggressiveness

This is the manner in which the organization develops new business. Would the marketplace characterize the organization as being made up of aggressive business development executives who constantly hustle business, or as an organization that waits for business to come in.

Because marketing aggressiveness is an external function, the marketplace perception is generally identical to the fact. Therefore, statistics on marketing budgets, client presentations and even new clients developed can be used to compare two organizations’ relative aggressiveness.


Asset base


The asset base is the factors that should be represented on an organization’s balance sheet: the quality of its staff, the quality of its clients and the organization’s capitalization.

Quality of staff

This deals as much with perception and reputation as it does with actual quality. Quality is in part intellect and in part the ability to accomplish clients’ objectives. Since these are very difficult to measure without extensive client surveys, the issue of staff quality only becomes an issue in the extremes.

Client List/contracts

Comparing client/contract lists is critical not only for evaluating the presence of actual or potential conflicts among clients, but also the name recognition value of each firm’s top clients/contracts. The question posed is whether the combination enhances or dilutes the perceived value of each organization’s client list.

Retained earnings

This refers to the organizations’ net equity. Organizations that are thinly capitalized and highly dependent on debt will have a difficult time consolidating with a more heavily capitalized, debt-adverse organization.