Business Mergers: The Top Questions You Need to Answer

business merger

Entering your business into a merger can be a complicated but worthwhile decision. You have likely spent countless hours building your empire up, so you want to keep your interests protected. If you are considering a business merger, the first step is to have your questions answered.

How Do You Merge Businesses?

Multiple measures are needed to enter into a merger. You should assess each company that will be involved and set goals for the merge. Assemble a reputable team of business brokers, attorneys, bankers, and accountants. Your team can help set the terms. All terms must be clear and detailed. Once a letter of intent is created, you can execute purchase and sale agreements. You should remember that the legal merge is not the last step. Internal affairs must also be addressed to keep operations running. 

What Makes a Merger More Successful?

While following the steps above will merge your business, there are a few extra tips to keep the transition smooth. It is important that each individual involved stays transparent and does their due diligence. The companies should have valuations done, including determining operating costs and financial positions. Once the cultures and corporate structures have been compared, new leadership and branding can be implemented.

What Types of Mergers Are There?

There are five common types of business mergers.

Horizontal

Horizontal mergers are the joining of two companies in the same industry. They often involve competitors who offer the same type of services or goods. Potential benefits are greatest for enterprises with few firms and high competition.

Vertical

Sometimes multiple companies produce pieces for a finished product. When two or more of those entities combine, it is called a vertical merger. Joining various levels of a supply chain into one company can increase efficiency.

Conglomerate

Conglomerates are mergers between unrelated businesses that are worth more combined. Market or product extensions occur if it is a mixed conglomerate merger. Conversely, pure conglomerate mergers are between companies with nothing in common. They continue to operate in their own areas. 

Product Extension

If differing businesses operating in the same market combine, a product extension merger occurs. Higher profits can be earned by grouping products and reaching more consumers.

Market Extension

Businesses selling the same type of products in different markets can perform a market extension merger. Merging increases the total range and client base.

Who Benefits From Mergers?

Businesses, consumers, and employees can benefit from mergers. The benefits depend greatly on the terms of the merger.

Businesses

Generally, companies only agree to merge if they find the merger beneficial. It can be a great way to reduce competition, expand their market, and increase customers. Higher production also leads to lower costs per unit produced. The result of successful mergers is increased profits.

Consumers

How beneficial a merger is for consumers depends heavily on the businesses. Potentially, the lower production costs can trickle down to customers through sales price decreases. Mergers may increase the variability and availability of new products. Higher efficiency can mean a better quality of products is being released. The businesses also have the opportunity to improve customer service during the restructuring.

Employees

The employees of each company can reap benefits under the right circumstances. If the merger increases the stability of the company, job security grows. The changing structure can lead to new opportunities, extra jobs, and improved training. Larger companies also tend to offer better benefits packages like retirements and insurance.

A successful merge can better your business’s future. Now that your top questions regarding mergers have been addressed, it is up to you to take the next steps.