A business merger is the legal consolidation of two or more entities to create a single company. This is often done to gain market share, expand into new territories, unite common products, reduce operating costs, increase revenues, or boost profits. The resulting company typically distributes shares of the combined entity to existing shareholders of both companies. Mergers are most commonly seen in the technology, healthcare, retail and financial industries.
The most common types of business mergers are horizontal, vertical, and conglomerate. Horizontal mergers are those between companies in the same industry. The companies may have some overlapping products, but no other common factors. Vertical mergers are those between companies in different industries. The companies may have some overlapping products, such as pharmaceuticals and manufacturing. A conglomerate merger occurs between firms engaged in unrelated business activities.
Mergers are usually negotiated by representatives of both parties involved. It is common for negotiations to take some time, even after both sides have agreed to terms. This is particularly true if the acquiring company is attempting to retain a certain level of leverage in the process. For example, the acquiring company might insist on keeping a minority stake in the acquired firm.
During the negotiation process, it is important to develop clear goals and strategies. The most common goal of a business merger is to improve company performance and profits. However, it is also important to have a plan in place for dealing with any issues that might arise during the integration process. This might include establishing a transition team, integrating IT systems and harmonizing corporate cultures.