In business, a merger is the combination of two or more companies into a single company. This type of business transaction can take many forms and is used to achieve a variety of goals. Mergers involve a thorough due diligence process that includes valuation, negotiations and legal formalities.
The most common reason for a merger is to create scale, which allows businesses to expand their product or service offerings. For example, a technology company may acquire a media content provider to offer unique bundles of services. This gives the new company a competitive advantage over its rivals.
Other reasons include strategic expansion, which can help a business achieve growth that would be difficult or impossible to attain organically. For example, a business could acquire an established brand to gain a strong reputation and access to its existing customer base.
Acquisition is often confused with a merger, but there are important differences between the two types of transactions. An acquisition involves purchasing the assets or ownership equity of a target company. This can occur through a purchase of all or substantially all of the target’s assets, or through the acquisition of a majority of its shares.
The key to success in a merger or acquisition is careful planning and cultural compatibility. It is also essential to understand what is negotiable and what must be non-negotiable. Knowing what you need to keep your business running smoothly and efficiently will make the process much easier and less risky.