The corporate world is nothing short of interesting business dynamics at play. Almost every day, there are tons of business deals being pitched or closed, each of which are comprehensive. Some dealings may involve the liquidation of specific assets, for example. Others may have to do with joining forces with another company’s operations.
If you are thinking that this sounds like a merger, you are almost on the right path. However, there is a lot going on behind the scenes with a merger, as well as other aspects to consider. Since it’s much more than just a simple team up, the core tenets of a merger must be discussed.
In the following guide, we will explain what is defined as a merger in business sense, along with other important things to know.
What is a merger?
In its most basic form, a merger is one of several corporate strategies used in business. This strategy involves combining one company with another, effectively merging both their operations. At that point, the companies will act as a single entity, and are equal in virtually every aspect. This could go for the size of the company, to the scale of their future operations.
Since no two companies are alike, there may be a myriad of reasons behind the pursuit of a merger. For some businesses, a merger may be necessary in order to benefit their shareholders. Since some shareholders, prior to the merger, will still play a major part, they will receive shares after it is complete.
Moreover, some companies may pursue a merger with another organization in order to acquire assets. These assets may have been challenging to get a hold of internally; a merger would expedite this process. This allows them to, in the future, diversify their portfolios or services of various products.
Even though the reasons behind a merger can vary, driving efficiency is often a common goal in mergers and acquisitions. It could also be a landmark stepping stone into something great!
Mergers with competitors
The world of business can be as cutthroat as any professional can imagine it to be. Mergers, if used strategically, can be a powerful tool to use when trying to reduce competition. Once initiated, the successful merging of two companies can actually reduce pricing of products sold.
It doesn’t have to be all doom and gloom when it comes to the survival of an original company. In fact, a merger that reduces competition can actually bring about several other benefits as well. Customers will benefit from reduced prices, which translates to increased sales in the long run.
Product Extension Merger
Mergers can also come in various types, since there will usually be a unique situation for every company pursuing one. One of the most common mergers to know about is called a product extension merger. When two companies share space in the same market, and want to merge, they fall into this category.
Once this is successfully completed, the entity will have a much larger customer base to sell products to. Not only does this benefit the organization, as well as customers, but it increases their market share too. New products can easily be developed down the line, to bolster its reputation!
Market Extension Merger
Although similar in vein to the merger strategy before it, this category is quite unique. A market extension merger involves two or more companies working in different markets as a start. However, the products being sold could essentially be considered as the same.
Once these companies successfully merge, they gain access to a larger market. This larger market brings a huge customer base, which benefits the entity for the foreseeable future. Mergers can be quite useful to pursue, if objectives align!
Benefits of mergers
Should a company want to pursue a reduction in their cost of operations, a merger should be considered when possible. A new entity, post-merger, can achieve economies of scale after combining operations from previous business dealings.
Furthermore, a merger can open new doors for a company that weren’t possible before. If an organization wants to go into a new geographical market, it could do, so post-merger! The business can thrive in distinct ways as a result.
Consequences of mergers
While it might seem that mergers can technically be immensely advantageous, not everything can be seen as positive. In some cases, mergers can lead to layoffs for employees of a specific company. This is especially true if the merger was aggressively pursued.
Older assets of one company may have to be lost, which could end up creating unemployment. However, once used strategically, a company may experience all the benefits of a merger, while mitigating the disadvantages!