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Mergers may help overcome hurdles to an initial public offering

On Behalf of | Feb 14, 2020 | Business Law

Growing and expanding a business in Pennsylvania comes with unique challenges that may result from a variety of external market factors. Changes made to governmental regulations, customer preferences and an increase in competitors may often affect a company’s strategy.

To counteract these issues and meet their goals, business owners may consider a merger with another company. A separate enterprise may already have specific resources that a growing company may not have access to on its own. When combined, however, two companies may take on several marketplace threats successfully and at the same time.

Merging to access investment capital

As reported by CNBC, a popular online sports entertainment and gaming company agreed to merge with a special-purpose company already trading publicly. The merger provides the privately owned gaming company with access to investment funds available only through the capital markets. Without a need to meet the listing requirements of a stock exchange, the mobile sports-betting company can forego the traditional route to an initial public offering.

Complying with local laws

With the development of the internet, companies may increase profit margins by doing business across state lines. Selling products or services to customers in another state, however, may require compliance with the particular laws of a new jurisdiction. Merging with an established company in another state could make the process of complying with local regulations both easier and more cost-effective.

Preparing the path for a combined company

Merging with another company or acquiring an existing business does not typically occur overnight. The process of due diligence may involve several steps before deciding how a combination could best improve profitability.

Prior to a closing transaction, the involved parties may ask for a disclosure of confidential material regarding each other’s businesses. After reviewing the inner workings of a company, negotiating the terms of a deal could then continue to require revisions and lengthy discussions before reaching a mutually satisfying conclusion.

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