A business merger occurs when two companies combine to form a single company with one combined stock. This is often done for a variety of reasons, including gaining market share, reducing operational costs, expanding to new territories, uniting common products and growing revenues and profits. It is most commonly used in the technology, healthcare, retail and financial sectors.
Mergers can be structured in a number of ways, with each structure having unique tax and regulatory implications. Acquisitions are similar to mergers but do not result in a new legal entity; the acquired company is simply absorbed by the acquiring company.
A key challenge during the M&A process is ensuring that the merged entity achieves its intended business purpose. This is particularly important in situations where the M&A involves companies that are competitors.
Regardless of the type of M&A, a thorough due diligence process is required to ensure the deal will be beneficial to both parties. This will involve a full financial audit and valuation of the target and the acquiring company, as well as a detailed review of all contracts and business relationships.
In addition, a transition team must be created to oversee the integration of systems and cultures. The best transition teams include a mix of line managers and leaders intimately familiar with both the original and acquiring entities. It is important to understand what issues can be negotiated and which are non-negotiable, such as control and board seats.