The basic notion of a Company Merger is actually very simple when two or more companies decide to combine their forces and embark upon a journey together as one. There are many reasons behind this merger and you will need to learn some about it to have a better knowledge of this side of the corporate world.
What is Company Merger?
A company merger occurs when two firms decide to merge and make a new company with combined stocks. Ideally, a merger is thought of as an equal split among the companies. This means, if two companies are merging as one then both companies will have 50% of the company shares. But this isn’t the case every time, sometimes the split could be uneven and one company could have a larger part of the share.
The reason behind the union of the two companies is to expand market share, and diversity of products, reducing risk factors, increasing profit, and cut down competitors. Well, the commonly known merging types are - conglomerates, vertical mergers, horizontal mergers, product extensions, andmarket extensions. However, companies who are keeping their options for merging open can surely go through this article.
What are the Different Types of Company Mergers?
There are mainly five types of company mergers and the types are segregated primarily by the business domain and the trade relationship between the two merging companies.
1. Conglomerate Merger - This happens when two companies with no similarities tie the knot for their future ventures. One of the most famous examples of the Conglomerate merger is when The Walt Disney Company merged with the American Broadcasting Company (ABC).
2. Vertical Merger - Vertical merger is when two companies from a parallel supply chain but selling different products tie up their knot. Their services might be different but their stage is similar. A great example of this merger is when The Walt Disney Company gets merged with Pixar Animation Studios.
3. Horizontal Merger - This merger happens between companies from a similar business domain merge. Suppose, a popular pizza joint is merging up with a great ice cream parlor would be considered a Horizontal merger.
4. Product Extension Merger - A product extension merger, also known as a congeneric merger, is a merging of two companies from a similar domain and selling similar products but are not competitors with one another. This merger is often used in the software industry.
5. Market Extension Merger - A market extension merger is exactly like the Horizontal merger. And this is often seen in banks when several small banks merge to create a more impactful and versatile banking system.
Why do Companies Merge?
If you ask why then there will be several reasons behind a single merger, here are some of them that might give you a better insight of why companies are willing to merge in the first place.
- Overall business growth
- To achieve better revenue synergies
- To achieve economies of scale
- Offer Diversity for their clients
- To vertically assimilate the business
- It will have better tax benefits
- For better knowledge and intellectual growth
Regardless of what the reason is, when two companies merge there are more important factors that start to rise. With better financial and intellectual growth this brings more diversity amongst the personnel as well.
How Does It Work?
The system is quite simple, two companies are working as one and sharing their profits into separate entities. During this time companies might undergo quite a bit of restructuring in terms of corporate leadership and operations.
Whatever the reason behind the merger or whichever domain these companies are from merging will always be hard initially but it brings more diversity and more success to both companies. History has witnessed how successful a company merger can be, several times.
