A business merger is a corporate transaction that involves two companies joining to form one entity. The combined company may retain the name of either of the original companies or it might use a new name. The goal of a business merger is to create a stronger, more competitive company with greater financial strength and a broader product or service offering.
A merger is a complicated process with numerous potential risks and benefits for both parties. It’s important to hire professional advisors to evaluate both companies’ income statements and balance sheets, examine each company’s intellectual property, assess any pending lawsuits or regulatory concerns, and determine whether the companies’ management styles and organizational cultures align. Then, advisors can perform a business valuation using a variety of methods including discounted cash flow (DCF), enterprise value, and relative valuation.
Regulatory Compliance: Mergers and acquisitions must comply with a variety of regulations, including antitrust laws, securities laws, and tax laws. Failure to comply can result in substantial legal and financial penalties.
Employee Retention: After a business merger, employees from the merging companies must be reassured that their jobs are secure and they will have opportunities to advance. In addition, employees should receive details about how the company will be restructured to integrate operations, IT systems, and human resources.
Expansion: A merger can give the acquiring company access to new distribution channels and markets without the cost of opening new facilities. For example, a company that sells pizza restaurants might merge with a food-service group that has TCBY, Cold Stone Creamery, or Planet Smoothie restaurants to gain broader market reach.