Search
  • TORRO Group

What is a Virtual Merger?

Updated: May 8, 2021



A small stand-alone company faces the challenge of having proportionally

very few buyers to acquire it. If it does happen to find a suitor, the likelihood

is that the purchase price multiple (companies are usually priced at a

multiple of profits or earnings) that a buyer is willing to pay for the company

will be proportionately small as well.

A virtual merger is created when several independent companies enter into a

contractual arrangement which is functionally, but not legally, equivalent to

a merger. In doing so, each of the companies contractually agrees to become

part of a larger notional group of companies in order to take advantage of

opportunities that are not otherwise available to them as small individual

entities. Despite this agreement, the underlying ownership of each company

does not change.

A virtual merger does not, unlike a traditional merger, integrate any of

the ‘merging’ companies into a group. Instead, each of the companies

remain independent of each other. So, from an ownership and operational

perspective, nothing changes.

Grouping several companies together in this manner is an efficient way of

quickly achieving scale. Having that increased scale will make the virtual

group much more attractive to a larger pool of potential buyers – who

will pay a premium for that scale. Therefore, on exit, the owners of each

company in the virtual group can expect to receive a higher price that might

otherwise only be achieved by means of exceptional organic growth. Thus,

the net result of the virtual merger is an exit price that is maximized for

the entrepreneur and done in a fraction of the time of growing a business

organically!

ADVANTAGES OF A VIRTUAL MERGER

A virtual merger has several advantages over standalone independent

companies:

  • Attractive to a much larger buyer pool.

  • Buyers will pay a premium for a group of themed companies.

  • Faster way to increase purchase price as opposed to waiting for organic growth.

  • Ability to cross-sell within the themed group.

  • Shared synergies and economies of scale.

  • Increased earnings and profits.

  • Easier to raise meaningful amounts of capital for a group of themed companies.

If you're wanting to learn more, contact us.


103 views0 comments