Mergers

A merger is a corporate action in which two or more entities combine to form a single organization. In a merger, participating firms may cease to exist independently, with a new legal entity created, or one company may survive while absorbing the other. This is distinct from an acquisition, in which one firm takes control of another and the target may remain a separate entity or be absorbed. Mergers can be effected through statutory mergers or consolidations, depending on jurisdiction and legal structure.

Types of mergers include horizontal mergers, where firms in the same industry and at similar stages join forces; vertical mergers, where firms at different stages of the supply chain merge; and conglomerate mergers, where companies in unrelated businesses combine. Mergers can be friendly, with mutual consent, or hostile, where one party pursues the deal despite opposition.

Common motives for mergers include the realization of synergies and economies of scale, expanded market reach or product lines, enhanced bargaining power, diversification of risk, and potential tax or financing advantages. Valuation, structure, and the exchange ratio or cash consideration are central to the deal, and transactions are often preceded by due diligence to assess assets, liabilities, and cultural fit.

Regulatory oversight is a key component, with antitrust or competition authorities reviewing proposed mergers for potential reductions in competition. Depending on the jurisdiction, approvals may require divestitures or other remedies. Post-merger integration is a critical phase, addressing governance, culture, systems, and operational alignment; poor integration is a common cause of merger failure despite favorable external terms.

Impacts of mergers extend to employees, customers, suppliers, and shareholders, and can influence competition, pricing, and innovation in the market. Measuring success varies but commonly considers realized synergies, integration costs, and long-term financial performance.