Mergers Definition and Examples: Everything You Need to Know
Mergers definition and examples would be any business deals that involve two or more existing companies combining into a single company. 3 min read
Mergers Definition and Examples
Mergers definition and examples would be any business deals that involve two or more existing companies combining into a single company. Such combinations can occur in many different ways, for a number of different reasons.
Companies can merge within industries or across industries and do so to expand their reach, streamline their production, or increase their market share, just to name a few scenarios and reasons. Generally, mergers will occur between companies of equal size; when the size is unequal, it will usually involve a larger company purchasing a smaller company outright.
Merging with another company can offer many advantages for your business. Some of these advantages may include:
- Increasing shareholder value.
- Reducing operation costs.
- Uniting common products.
- Increasing revenues and profits.
- Gaining access to new markets.
- Freezing out competitors.
- Filling gaps in product lines.
- Increasing distribution channels.
- Expanding technical knowledge.
- Strengthening infrastructure.
- Deepening cash reserves.
The Merger Process
Before you merge with another company, you should first find out what the potential merger partner is worth and consult experts in the field (lawyers, accountants, and business brokers) about a possible merger. The ideal merger candidate will be one that finds your company to be a strategic fit for its own business. If they think highly enough of your company, they may even pay a premium price for the opportunity to merge.
Before a merger can take place, both businesses should:
- Clean the balance sheet.
- Drop less successful products.
- End insider deals.
- Trim fringe benefits.
- Make sure there are no outstanding taxes.
- Have two or more years of audited financial statements.
Types of Mergers
There are five basic kinds of mergers, and they are:
- Conglomerate mergers. This merger is one involving two or more businesses that are involved in business activities unrelated to one another. A pure conglomerate will be between businesses that have absolutely nothing in common with one another. A mixed conglomerate is between companies that are trying to supplement their own business by joining with a business in an unrelated one.
- Congeneric mergers. These occur between two or more businesses operating in the same sector or market with factors that overlap, such as marketing, technology, research and development (R&D), or production processes. This merger is done to create a stronger company through the complementary qualities of each company.
- Market extension mergers. This merger happens when companies that are competing in different markets with the same products want to join together to create a bigger market.
- Horizontal merger. This is a merger between two or more companies that operate in the same industry. It is done to consolidate between companies that are offering the same services or products. These mergers are more common in companies with fewer competitors.
- Vertical merger. This is a merger between two companies that handle different services or production methods related to a single, specific product. Such mergers increase efficiency of production, reduce costs, and can increase quality, as well.
Mergers can occur within all industries and between companies of all sizes. Some prominent examples of mergers include:
- Anheuser-Busch InBev. This company is the result of a merger between Anheuser-Busch, Interbrew, and Ambev. First Interbrew, a Belgium company, merged with Ambev, a Brazilian company. Then Anheuser-Busch merged with them, uniting the first, third, and fifth largest brewers in the world into one. This is an example of both a market extension and a horizontal merger.
- CMC and TCS. In this merger, TCS absorbed CMC into itself, thereby consolidating their IT businesses into one with greater financial flexibility and strength, further reach, a more rationalized structure, a more focused operational effort, standardized and simplified business processes, and greater productivity. This is an example of a purely horizontal merger.
- Sun Pharmaceuticals and Ranbaxy. In this deal, Sun Pharmaceutical absorbed Ranbaxy in order to fill Sun’s gaps in its US market, gain greater access to emerging markets, and increase its presence domestically. This also made Sun the largest generic company in dermatology products.
If you need help understanding the definition and types of mergers, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.