A business merger involves two separate legal entities coming together to form a single, combined entity. The process may take many forms and involve several steps, such as identifying the strategic objectives of a business merger, conducting due diligence, and negotiating terms that will benefit both companies. A successful business merger can result in greater efficiency, higher profits and increased value for shareholders. However, it is important to understand the risks and challenges that are associated with this type of business transaction.
Strategic Expansion
One of the most common reasons businesses explore a business merger is to expand their market reach or gain access to new customer segments. In addition, some companies purchase other businesses to achieve a level of industry diversification that reduces their dependence on a single revenue stream or markets and can better hedge against economic downturns or market volatility.
Due Diligence
In order to determine if a potential acquisition aligns with strategic goals, businesses must carefully assess the other company’s finances, policies, contracts, patents and assets. An evaluation of the other company’s culture and ability to integrate with existing staff and operations is also critical.
Mergers may be effected through a number of methods, including an asset exchange (where one corporation takes ownership of the shares of another corporation), a share exchange or a reverse merger. A consolidation, which is a type of merger involving only a portion of one company’s assets is permitted under some, but not all, state business entity statutes.