Merger is a business strategy that allows for the combination of two or more companies into a single entity. This process can take many forms and is pursued for a variety of reasons, including increased market power, expanded customer bases, and increased profitability.
In the most basic form of a Merger, the buyer (the Acquiror) purchases the shares or assets of the company that it is absorbing (the Target). The Target may be liquidated and its cash returned to its shareholders or may be structured as an asset purchase, in which case the Target is left as an empty shell.
The acquiring company is also referred to as the Surviving Entity in some Merger types. The final terms of the transaction are documented in a definitive agreement and approved by both parties’ legal and financial advisors. The Merger can be subject to conditions, such as obtaining regulatory approval and ensuring that no material adverse change in the Target occurs.
While there are a number of benefits to a merger, the process is not without its challenges. For example, employee morale can be impacted and redundancies can occur, leading to dissatisfaction. Moreover, successfully integrating the operations and cultures of the merged entities can be time-consuming. In addition, there are often regulatory and legal concerns to navigate, and unforeseen issues may arise. These obstacles can increase the cost of a Merger or even derail it altogether. However, if the acquiring company can overcome these hurdles, a Merger can be an effective way to achieve strategic objectives and compete in today’s marketplace.