Merger

A merger is the combination of two or more legal entities into a single new entity or the absorption of one company by another, resulting in a reorganized corporate structure. Mergers are typically pursued to increase scale, expand market share, diversify products or services, achieve synergies, or gain competitive advantages. Mergers differ from acquisitions in that they often involve mutual agreement and may create a new corporate identity, whereas in an acquisition one company absorbs another and may continue or cease to exist as a separate entity.

Merger transactions proceed through several stages, including strategic assessment, due diligence, valuation, and negotiation of terms. Financing may involve cash, stock swaps, or a combination. The transaction is subject to governance requirements, including approval by the boards of directors, and, in many jurisdictions, shareholder votes and regulatory clearances from competition authorities and securities regulators.

Valuation in mergers commonly uses methods such as discounted cash flow, comparable company analysis, and precedent transactions to determine an exchange ratio or cash consideration. Accounting for mergers is governed by applicable standards; post-merger, financial statements consolidate the combined entity and synergies may affect earnings and debt levels. Integration planning addresses combining operations, systems, cultures, and leadership to realize expected benefits.

Merger activity is influenced by economic conditions, regulatory environments, and industry dynamics. Potential risks include overestimation of synergies, cultural clashes, antitrust challenges, financing constraints, and disruption to customers and employees. Proper governance and careful integration are central to realizing the intended strategic outcomes.