A business merger is when two companies join to form a new entity. They do this to gain market share, reduce operational costs, increase profitability, and expand into new territories or markets. The merged company shares are then distributed to the shareholders of both original companies. Mergers are most often carried out in the technology, healthcare, retail and financial industries.
Before a merger can happen, it is essential to carry out a detailed and thorough analysis of both companies, including the financial statements of each business. A thorough due diligence process must also be undertaken to assess the intellectual property, brand, assets, and corporate culture of each company.
Depending on the type of merger, the due diligence may also include reviewing material contracts like equipment leases, supplier and customer agreements, credit and loan agreements, invoices and receivables, guaranties, and joint venture agreements. Similarly, legal agreements such as employment contracts, exclusivity, and non-compete agreements must be examined for the potential to impact the merger.
After the merger, key talent from both companies will need to be identified and retained, cultural differences understood, and an integration plan implemented. The leadership structure of the merged company must be defined and the management reporting system created. It may also be necessary to open new business bank accounts, get new state and federal tax IDs, and re-apply for licenses and permits if these are needed. Non-financial considerations should also be kept in mind, such as whether a merger will result in too many job losses in a depressed area or fund political and social campaigns that do not align with one of the existing companies’ beliefs.