There are many reasons why a company might consider a business merger, whether it’s to achieve economies of scale, consolidate market share, strengthen position for a future sale or investment or boost profitability. However, a successful business merger is not without risks. Mergers can be costly and time consuming, and they can disrupt employees, customers, and suppliers. Ultimately, they can have a major impact on the culture of the combined organization.
Mergers are legal consolidations of two or more business entities into a single entity with one corporate leadership team. The assets and liabilities of the companies are combined, and the stocks of the original businesses are retired and replaced with stock in the acquiring company. A merger is a statutory transaction, so the requirements of the business entity laws of the buyer and seller must be met to become legally effective.
A merged company may be called a corporation, joint venture, partnership, limited liability corporation, or other name. The resulting entity can be publicly traded or privately held.
A company can also acquire another company by paying for all or a majority interest in the acquired company’s stock, thereby directly purchasing the shareholders. This is a non-statutory acquisition and can be done without complying with the requirements of the business entity laws of the buyers and sellers. In this case, the acquiring company may pay in cash or issue its own stock to the existing shareholders of the acquired company.