Merger

[rsenn]

The owner of the company I work for also owns two other companies. He is thinking of merging the one that I work for and one of the others. Both do federal contracting and subcontracting in complementary areas. A merger does seem reasonable on the surface.

What are the problems that are likely to arise and how to solve them, or prevent them, is the question put to me.

I'm not sure how the merger would be structured (one company buys another, which one would survive, or they merge into a new shell company, one simply buys the assets of the other, or what), and no doubt he's not sure yet, either.

So, can anybody here point out problems to watch for and how to solve or prevent them?

I'm thinking that contracts from at least one company will have to be novated, and that's likely a big process. What if the merger takes place before the contracts are novated, or one of the other parties refuses or will go along with the novation only in exchange for something (e.g., a price reduction). Can anybody point me to anything helpful in the matter of novations? Is there a way to structure the merger to avoid the need for novations?

Then there's the issue of proposals in the evaluation process at the time of merger. If company A is merged into company B and loses it's identity, how can company B step into the shoes of company A for the proposal already submitted by company A?

Then there's payroll, accounting, bank financing, and tax issues. Help is welcome, although I recognize that this is a contracts forum.

I guess one company will ultimately cease to be (i.e., not have it's corporate charter renewed come the annual renewal). What are the traps to watch for?

Sorry if this is a bit disorganized. It was just dropped on me and I'm trying to get my arms around it.

[woops85]

Do Company A, B and C do similar work or are they different niche areas? If they each have the same GSA Schedule (such as 70 or MOBIS), you would need to talk to the ACO for each contract as you may have to terminate one of them (not sure which is why you need to talk to Schedule CO). If the new company is going to have multiple schedule contracts (such as MOBIS, 70 and LogWorld), you may want to think about a consolidated schedule contract - again talk to your GSA COs.

Are the companies on the same fiscal year? You could be affecting cost pools so if result is one company, it's easier on you if the merger happened at start of the corporate FY. That way you are affecting indirect rates for only one corporate FY and not 2.

[here_2_help]

I guess one company will ultimately cease to be (i.e., not have it's corporate charter renewed come the annual renewal). What are the traps to watch for?

Sorry if this is a bit disorganized. It was just dropped on me and I'm trying to get my arms around it.

Hi rsenn,

First, I like your user name! I guess you DID start the fire (misquoting Billy Joel there).

Having been involved with several mergers & acquisitions of Government contractors, let me advise you first to obtain the services of an expert advisor. An attorny for sure, but perhaps also a financial advisor who has a specialty in Government contracting and accounting matters. (Pretty much every major and regional accounting firm has a few lying around.) The issues are too numerous to go into here, ranging from impact on forward pricing rates to contractor business system adequacy, from Disclosure Statements to contract novations, from the margin impact to fixed price contracts to the price impact to proposals in the pipeline.

The stuff you mentioned (e.g., bank, insurance, and tax issues) are actually pretty straightforward. But the FAR and CAS stuff is a killer. And you didn't even mention potential security clearance issues!

My advice -- get an expert. You won't regret it.

[rsenn]

Do Company A, B and C do similar work or are they different niche areas? If they each have the same GSA Schedule (such as 70 or MOBIS), you would need to talk to the ACO for each contract as you may have to terminate one of them (not sure which is why you need to talk to Schedule CO). If the new company is going to have multiple schedule contracts (such as MOBIS, 70 and LogWorld), you may want to think about a consolidated schedule contract - again talk to your GSA COs.

Are the companies on the same fiscal year? You could be affecting cost pools so if result is one company, it's easier on you if the merger happened at start of the corporate FY. That way you are affecting indirect rates for only one corporate FY and not 2.

The two companies being considered for merger are both information technolgoy related. One does services, the other has a suite of products that it licenses and supports.

Both are small. CAS is not an issue, fortunately.

They do both have GSA contracts, but at the moment I know nothing about the one the other company has.

Fiscal years are calendar year end, which is pretty close.

Security issues I hadn't considered, but I'll leave that to the Facility Security Officer.

[here_2_help]

Security issues I hadn't considered, but I'll leave that to the Facility Security Officer.

rsenn,

Obviously you can do whatever you wish; however, you did make an inquiry regarding potential problems and/or issues that might arise.

Let me make another attempt.

You seem to be taking a piece-meal approach, where certain problems and/or issues are within your ambit and others are outside of it. That's natural. However, you will find that having somebody with a "big picture" perspective, who has cognizance over all the various moving parts, is a best practice. If that's not you, it should be somebody else.

I suggested an external advisor.

I'm not looking for the job; I'm giving you advice based on first-hand experience gleaned over several M&A/integration projects.

H2H

[Don Mansfield]

rsenn,

Still time to sign up: http://www.fedpubseminars.com/Government-C...d-Acquisitions/.

They're offering a 35% discount on their 2011 classes.