Founders, pursuing a merger or acquisition? Keep these 4 tips in mind

From financing to office space, there’s a lot to consider as a startup founder, and that’s especially true for founders from underrepresented backgrounds, who often face struggles to access capital or know what resources are available to them.

To help them avoid the worst pitfalls of business ownership, Chloe Capital’s Invest In Women x Pittsburgh has been trying to fill in the gaps by virtually sharing best practices with women founders in Allegheny and Westmoreland counties and beyond.

Its latest instructional event came as the program is searching for its next class, after a successful Ascender and Richard King Mellon Foundation-supported cohort of women-founded startups in 2022.

Apply by Nov. 17

While some people consider mergers and acquisitions to be a surefire way to acquire new talent and combine resources, it’s not an enterprise to embark on lightly. Here are four things Chloe Capital’s managing partner and Meyer Law pros say you should keep in mind when considering a merger.

1. Have your paperwork in order.

Before entering into a merger, it’s important to organize your files and documents in a central location, be that a corporate folder, HR folder or intellectual property folder. It just has to be accessible and organized so that your legal team will be able to look at them.

“You want to save your files in an easy-to-share manner and just make sure that you’re staying organized as you sign new contracts, bring on new team members and expand,” Meyer Law founder and Managing Attorney Tricia Meyer said during the Tuesday webinar.

2. Do your due diligence.

Although it’s not wrong to have high hopes for your merger, it’s important to have a good lawyer to help you avoid headaches down the road. With that in mind, be prepared early on in the acquisition process to conduct a legal review. For every happy ending, there is a horror story, and not involving lawyers upfront could lead to costly cleanup and potential deal-breaking issues.

“It just makes the timeline go that much slower,” Chloe Capital Managing Partner Elisa Miller-Out said. “I mean, it’s already a little lengthy process. Don’t make it worse by trying to clean up while you’re trying to go through this acquisition. It’s so much easier if you have all of your ducks in a row in the beginning, then you enter into the process.”

3. Know who you’re merging with.

It’s important to understand the reputation, financial stability, and culture of the company you’re acquiring or merging with to ensure they’re a good fit. Miller-Out said it also never hurts to be cautious if you’re ever approached by early-stage competitors because they could be more interested in learning sensitive information about your startup than merging. So when in doubt, never be afraid to introduce a nondisclosure agreement.

“Make sure that you’re entering into a mutual nondisclosure agreement, make sure that that definition of confidential information covers all of the information that you will potentially share, [and] make sure the term of that agreement will cover the period of discussions and make sure that their obligations extend beyond that term,” Meyer said.

4. Be prepared for how time-consuming the process is.

Every merger and acquisition is unique and therefore requires a lot of time and effort. Although some people assume it only takes a month, the reality is that it could take roughly a year depending on the transaction, per the experts. Although the seemingly endless paperwork might seem daunting, remember that a part of the reason for the lengthy process is ensuring that it’s done properly.

“It’s just really important to ensure that business transactions are done correctly while minimizing as much risk as possible,” Miller-Out said. “And when you’re doing that, as Tricia mentioned, you’re going to look for the key steps, to prepare yourself, for your business to be sold, or to make yourself more attractive to potential buyer and avoid those costly mistakes.”

Do you have any advice for founders considering mergers and acquisitions? Or anything you’d wish you’d known as a founder starting out? Email pittsburgh@technical.ly to share.

Atiya Irvin-Mitchell is a 2022-2024 corps member for Report for America, an initiative of The Groundtruth Project that pairs young journalists with local newsrooms. This position is supported by the Heinz Endowments.