{"id":75,"date":"2021-01-19T06:14:44","date_gmt":"2021-01-19T06:14:44","guid":{"rendered":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/?p=75"},"modified":"2021-01-19T06:24:21","modified_gmt":"2021-01-19T06:24:21","slug":"what-is-a-merger","status":"publish","type":"post","link":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/2021\/01\/19\/what-is-a-merger\/","title":{"rendered":"What is a Merger?"},"content":{"rendered":"\n<h4 class=\"wp-block-heading\">A merger is a corporate strategy to combine with another company and operate as a single legal entity. The companies agreeing to mergers are typically equal in terms of size and scale of operations.<\/h4>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" src=\"https:\/\/cdn.corporatefinanceinstitute.com\/assets\/merger-1024x576.jpeg\" alt=\"Merger\" class=\"wp-image-55927\"\/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Summary<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Companies seek mergers to gain access to a larger market and customer base, reduce competition, and achieve economies of scale.<\/strong><\/li><li><strong>There are different types of mergers that the companies can follow, depending on their objectives and strategies.<\/strong><\/li><li><strong>A merger is different from an acquisition. Mergers happen when two or more companies combine to form a new entity, whereas an acquisition is the takeover of a company by another company.<\/strong><\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Why do Mergers Happen?<\/h3>\n\n\n\n<ul class=\"wp-block-list\"><li>After the merger, companies will secure more resources and the scale of operations will increase.<\/li><li>Companies may undergo a merger to benefit their shareholders. The existing shareholders of the original organizations receive shares in the new company after the merger.<\/li><li>Companies may agree for a merger to enter new markets or diversify their offering of&nbsp;<a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/knowledge\/other\/products-and-services\/\">products and services<\/a>, consequently increasing profits.<\/li><li>Mergers also take place when companies want to acquire assets that would take time to develop internally.<\/li><li>To lower the tax liability, a company generating substantial taxable income may look to merge with a company with significant&nbsp;<a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/knowledge\/modeling\/nol-tax-loss-carryforward\/\">tax loss carry forward<\/a>.<\/li><li>A merger between companies will eliminate competition among them, thus reducing the advertising price of the products. In addition, the reduction in prices will benefit customers and eventually increase sales.<\/li><li>Mergers may result in better planning and utilization of financial resources.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Types of Merger<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. Congeneric\/Product extension merger<\/h4>\n\n\n\n<p>Such mergers happen between companies operating in the same market. The merger results in the addition of a new product to the existing product line of one company. As a result of the union, companies can access a larger customer base and increase their market share.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Conglomerate merger<\/h4>\n\n\n\n<p>Conglomerate merger is a union of companies operating in unrelated activities. The union will take place only if it increases the wealth of the shareholders.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">3. Market extension merger<\/h4>\n\n\n\n<p>Companies operating in different markets, but selling the same products, combine in order to access a larger market and larger customer base.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">4. Horizontal merger<\/h4>\n\n\n\n<p>Companies operating in markets with fewer such businesses merge to gain a larger market. A horizontal merger is a type of consolidation of companies selling similar products or services. It results in the elimination of competition; hence, economies of scale can be achieved.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">5. Vertical merger<\/h4>\n\n\n\n<p>A vertical merger occurs when companies operating in the same industry, but at different levels in the supply chain, merge. Such mergers happen to increase synergies,&nbsp;<a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/knowledge\/strategy\/supply-chain\/\">supply chain<\/a>&nbsp;control, and efficiency.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Advantages of a Merger<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. Increases market share<\/h4>\n\n\n\n<p>When companies merge, the new company gains a larger market share and gets ahead in the competition.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Reduces the cost of operations<\/h4>\n\n\n\n<p>Companies can achieve&nbsp;<a href=\"https:\/\/corporatefinanceinstitute.com\/resources\/knowledge\/economics\/economies-of-scale\/\">economies of scale,<\/a>&nbsp;such as bulk buying of raw materials, which can result in cost reductions. The investments on assets are now spread out over a larger output, which leads to technical economies.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">3. Avoids replication<\/h4>\n\n\n\n<p>Some companies producing similar products may merge to avoid duplication and eliminate competition. It also results in reduced prices for the customers.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">4. Expands business into new geographic areas<\/h4>\n\n\n\n<p>A company seeking to expand its business in a certain geographical area may merge with another similar company operating in the same area to get the business started.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">5. Prevents closure of an unprofitable business<\/h4>\n\n\n\n<p>Mergers can save a company from going bankrupt and also save many jobs.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Disadvantages of a Merger<\/h3>\n\n\n\n<h4 class=\"wp-block-heading\">1. Raises prices of products or services<\/h4>\n\n\n\n<p>A merger results in reduced competition and a larger market share. Thus, the new company can gain a monopoly and increase the prices of its products or services.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">2. Creates gaps in communication<\/h4>\n\n\n\n<p>The companies that have agreed to merge may have different&nbsp;<a href=\"https:\/\/hbr.org\/2013\/05\/six-components-of-culture\" target=\"_blank\" rel=\"noreferrer noopener\">cultures<\/a>. It may result in a gap in communication and affect the performance of the employees.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">3. Creates unemployment<\/h4>\n\n\n\n<p>In an aggressive merger, a company may opt to eliminate the underperforming assets of the other company. It may result in employees losing their jobs.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">4. Prevents economies of scale<\/h4>\n\n\n\n<p>In cases where there is little in common between the companies, it may be difficult to gain synergies. Also, a bigger company may be unable to motivate employees and achieve the same degree of control. Thus, the new company may not be able to achieve economies of scale.<\/p>\n\n\n\n<p>Adapted From : https:\/\/corporatefinanceinstitute.com\/resources\/knowledge\/deals\/merger\/<\/p>\n","protected":false},"excerpt":{"rendered":"<p>A merger is a corporate strategy to combine with another company and operate as a single legal entity. The companies agreeing to mergers are typically equal in terms of size and scale of operations. Summary Companies seek mergers to gain access to a larger market and customer base, reduce competition, and achieve economies of scale. [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":79,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,6],"tags":[],"class_list":["post-75","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-introductory","category-merger-opportunity"],"_links":{"self":[{"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/posts\/75","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/comments?post=75"}],"version-history":[{"count":1,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/posts\/75\/revisions"}],"predecessor-version":[{"id":76,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/posts\/75\/revisions\/76"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/media\/79"}],"wp:attachment":[{"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/media?parent=75"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/categories?post=75"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/iinvestors.e-proficientlab.com\/iinvestors\/wp-json\/wp\/v2\/tags?post=75"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}