Questions about a merger

[rogercbryan]

I’ll start with a basic outline of the two companies and then give my reasoning for doing this deal. I’m looking for some outside advice on how to make this work as smooth as possible.

Primary Company (my company)
National Charity Services:
Our mission is to provide logistical and managerial support to non-profits in order to help them to achieve maximum profitability from all fund raising efforts.

Our Company is dedicated to helping organizations create, implement, and manage vehicle donation programs all across the US. Since the tax law changes of 2004 the vehicle donation industry has seen some turbulent times. Many charities have abandoned their programs all together in the face of burdensome Government Regulations. When organizations face a lack of funding or a lack of manpower this is where National Charity Services comes in.

Through our innovative technologies and programs National Charity Services will streamline your charitable vehicle donation program helping it to maximize the profitability of every available element.
* Welcome to Charity Dispatch!

Years in business 1.5
Employees 8
Annual Sales $780,000 (2007) Projected 2008 Sales $1,500,000


Company to be merged
Capital Dispatch:
Capital Dispatch is a towing brokerage company primarily focused on picking up vehicles that are donated to charities that sell at Capital Auto Auction of Washington, DC and Temple Hills, MD. (about 30,000 cars per year)

Years in business 13
Employees 5
Annual Sales $300,000 (2007) Projected 2008 Sales $300,000
** This company has been on a steady decline since 2004. Loosing about 20% of its annual sales each year. This company had gross sales of over $700,000 in 2004.

Reason for merger:
This is not an exact quote (Warren Buffet); “The true value of a merger comes not from two companies being brought together to do what they are already doing. The value is created when you can merge management to do something new”.
*I heard him say something along these lines on CNBC.

This quote best describes what I’m trying to do.

Decrease expenses:
- We are each paying $2000 per month in rent each yet I have enough space to house their entire staff. We will also save money on all utilities.

- Our staff members do basically the exact same thing, just at different points in the process. By merging we should be able to share staff therefore allowing us to eliminate 1-2 full time positions.

Based on the quote from Mr. Buffet we will also launch a new internet based dispatching program primarily focused on auto auctions. The program will piggy back on the marketing done by Capital Auto Auction (largest public auto auction in the country). This new program will allow us both to diversify out of the vehicle donation industry while keeping to our skill sets (logistics for the automotive industry).

I’m hoping to bring in the current owner of the company to be merged and to make her the GM of the combined company. She brings a great deal of experience to the table and she would allow me to get back to sales which is my strong point.

Here are some of my questions:
1- When you bring in an owner and then put them in a position to manage with full authority how do you introduce this to your current staff. I know my office manager is going to be a little upset that someone is being put in above her. She (office manager) just does not have the experience that the owner of the other company has.

2- Neither party is exchanging money for the merger. The owner of the company to be merged will retain rights to her income streams from preexisting accounts. The plan is for me to pay her a little extra ($200 per week) to compensate her for her management skills and experience being applied to my company. We are then going to split the new business (internet based transport company) 50/50. Does this sound like it will work?

3- Both of us have strong brand names. Capital Dispatch is a well known towing company in the DC area and National Charity Services has spent a lot of money to gain brand awareness all across the US. I’m thinking that we will continue to work under each of our old names. Any opinions on that?

4- This is basically a combination of an older experienced (yet declining) company with a new inexperienced (yet innovative) new company. What other areas could we look for synergies?

This merger is set to happen sometime in February so I would like hear from anyone on this topic. I’ve made the commitment to do this and I feel like the numbers show it is a good plan. I’m just nervous as all hell because I’ve never done anything like this before.

Look forward to hearing from you all…

[BusinessAdviser]

If you've already made the commitment, and there's no backing out, why even ask? Just go balls to the wall unwaveringly. You'll sleep better at night.

[rogercbryan]

If you've already made the commitment, and there's no backing out, why even ask? Just go balls to the wall unwaveringly. You'll sleep better at night.

I haven't slept much at all lately.. maybe thats why I end up in arguments with people on here at 2:00am. I'm in uncharted waters and I really can't seem to find anyone in my past business dealings with whom I can bounce these types of questions off of...

Someone out there has to have been through this. Help?

[jasaunders]

The focal point really is number 2 above. It's hard to understand why you would structure the deal in such a way, as this is obviously not typical of an M&A deal. What benefit are you getting out of this structure other than saving on operating costs (and not needing capital to close the deal)? It cuts costs, but will it help grow the "new" company.

Which brings me to the second point, it doesn't look like you are going to have a "new" company, just two seperate companies working out of the same building. You should take a more careful look at how you can create a new brand, that is more powerful than both of them are individually. Afterall, if you have two powerful brands, why can't you make it an even stronger one? Let people know that these two great companies are now even one better company, offering a wider range of services.

[rogercbryan]

This is a good question. Originally I was going to buy her out and then hire her to come work for me. We came close to a deal until our primary client (Capital Auto Auction) objected to that happening. They said that they would not be comfortable with one third party company having so much control over their supply chain.

From my business plan:
The Process
Step 1: NCS advertises and solicits for vehicle donations. NCS then takes in coming donations and process them for pick-up. We amount to 10% of total auction supply in this one market. They amount to 40% of our annual sales.

Step 2: Capital Dispatch picks up the cars and delivers them to auction. Capital Dispatch picks up 90% of incoming inventory in this market. Capital Auto Auction amounts to 95% of their total income.

Step 3: Capital Auto Auction sells the cars via a live and/or internet auction.

Step 4: Cars are picked up by or delivered to the buyer.
*This is where we would start our new venture

The vehicle donation industry is struggling right now. This is the main reason why I’m getting the opportunity to move into this new plan. I’m trying to diversify into other aspects of the auto logistics industry.

Question-
Would you say that I should create a main brand possibly with the new venture we are going to pursue and then over time work towards making that my primary brand? Or would you keep all three and let them work their individual niches?

Come on.. pick this apart and tell me what I might be doing wrong… I promise you can’t hurt my feelings…