An Ultimate Guide to Company Mergers
A merger is a business transaction in which two different companies combine their resources to become a single, larger company. There are a number of powerful reasons which make the notion of a merger appealing to companies. It might be to fill in gaps in their production processes, it might be to expand their customer bases, or it may simply be to increase their market value. In any case, the newly formed single company will usually be more competitive than either of the separate companies were.
How a Merger Works
In most cases, a merger occurs between two companies that have approximately the same size, customer base, and total value. For both companies to benefit by the merger, it must be a combination of two companies that have relatively equal value. When these two companies combine, they will generally gain market share, realize economies on production cost, combine common manufacturing processes, increase profits, and expand into new markets. Once a merger has taken place, any shares in the new company will become distributed among the original shareholders of the two original distinct companies.
Types of Mergers
There are five basic types of mergers, those being conglomerate, horizontal, vertical, market extension, and product extension. In a conglomerate merger, the two companies being merged are generally involved in business activities that are not related to each other. In a product extension merger, the two companies operate within the same market and industry, and are pooling their resources to gain market share. A market extension merger involves companies that sell the same products, but operate within two different markets. In a horizontal merger, two companies in the same industry join forces in order to increase their market share. In a vertical merger, two companies involved in different phases of some type of production chain will combine their forces to become a stronger company, by covering more of the overall production chain.
If you’re considering going through a merger, we may be able to assist you in the area of funding. Contact us at Summit Commercial Capital to find out about the financial support we can offer.