A business merger refers to the legal joining of two companies into one, and it’s done for many reasons, including expanding into new territories, reducing operational costs, boosting revenues or eliminating competition. Business mergers are most common in industries like technology, healthcare, retail and financial services, and they can be friendly or hostile.
When considering a business merger, the most important factor is to ensure that it will deliver the commercial outcomes you want. This means assessing the target company’s financial position, operations, intellectual property, customer base and corporate culture to make sure they fit in with your own. It also means defining your desired outcome and the criteria you will use to judge whether it has been achieved.
The structure of a business merger will impact everything from integration planning to governance and shareholder dynamics. There are several types of business mergers, including horizontal, vertical and market extension, as well as product and brand aggregation. In a horizontal merger, companies in the same industry merge to increase their market share; in a vertical merger, a supplier and manufacturer merge; and in a product-extension merger, brands that share similar customers join together under one umbrella.
The most common type of acquisition is a management buyout, in which the current team of managers takes over the ownership of a company from its existing shareholders. It’s also possible to acquire a small percentage of a large company, rather than take over the entire company.