A business merger involves two separate legal entities joining to create a single, combined entity. The merging entities typically retain their own names and business structures but combine their assets, liabilities, and operational functions to create a new, combined company. Mergers are commonly used by businesses looking to grow quickly or position themselves for a future sale or investment.
A common reason for a business merger is to expand into new markets, with the acquiring company taking advantage of the existing distribution channels and customer base of its target company. This type of business acquisition is often referred to as a “horizontal merger.”
In other cases, a business acquires its competitor in order to eliminate a tier of suppliers or distributors. This is referred to as a “vertical merger.” By eliminating this tier, a business can often save on manufacturing costs, as well as shipping and distribution expenses.
Businesses undergoing a business merger can also benefit from economies of scale. This often comes from streamlining operations, combining product or service offerings, and eliminating or redeploying duplicate functions. Economies of scale can lead to increased cost savings, better bargaining power with vendors and customers, and improved overall productivity.
While a business merger can be a good strategic move for some companies, it is important to keep in mind that not all M&A deals are successful. A key driver of the success or failure of M&A is culture clash, which can occur when the values and mission of one company don’t align with those of another.