Merger involves two or more companies consolidating their operations into a single entity. They may merge to expand into new markets, improve operational efficiencies, increase revenue, reduce costs, or eliminate business rivals. Often, mergers are spearheaded by investment bankers who help to source deals, value businesses, and forecast outcomes. Corporate lawyers oversee M&A deals, ensuring that the transaction complies with federal and state regulations.
M&A activity can lead to a number of short-term issues for shareholders, such as transition problems and the inability of management teams to meld workflows, employees, and cultures. Successful mergers rely on competent transition teams and a clear roadmap for how the new entity will deliver on its promises.
When a company is acquired, its shareholders receive stock in the acquiring firm, which is then valued and incorporated into the new company as part of the deal. This can be structured as an asset purchase where the acquired company is dissolved, or as a purchase-with-shares transaction. The latter is popular because it allows the acquiring company to “cherry-pick” only the assets and liabilities it wants from the acquired business, reducing the potential for unquantified damage awards.
A conglomerate merger takes place between firms that operate in different industries or geographical areas, but have overlapping products. A conglomerate merger is most common when two or more companies seek to increase market share or expand into a new product line. This type of M&A can be complex to structure and requires a careful review of the financial implications of each deal.