A business merger is the joining together of two companies into one company. It may be “friendly” or “hostile,” and can be aimed at achieving economies of scale, improving profits, entering new markets, or eliminating competition.
Although few businesses are built with the intention of merging, there are many reasons to combine two existing business entities into a single legal entity. These include expanding into new territories, adding technologies, reducing costs, eliminating competition, boosting revenue or market share, and more.
Mergers are complex, time-consuming, and expensive. They are often associated with layoffs and significant changes in workplace culture, and can result in lost productivity during the transition period following the transaction. A successful business merger depends on the preparation and coordination of both sides, including a carefully drafted plan of action for handling the process and communicating effectively.
Obtaining a thorough valuation of the merged entity is essential to ensure a fair price. This is usually done using a discounted cash flow (DCF) valuation.
In addition to calculating the financial value of a business, you must also consider how the merger will affect workforce and other intangible assets. The key to a successful M&A is having a plan for how the resulting company will operate, and the ability to communicate that plan with employees. This includes addressing cultural issues and ensuring that the resulting company will meet customers’ needs and expectations.
About the Author
