Company mergers. Steps to follow and recommendations.

Owning and developing your own company, no matter the obstacles and fierce competition, is an impressive accomplishment. And if you reach that moment when you want a merger with a different company, you’ll see that challenges are tougher still, even if the final result could be very beneficial for both parties involved in the merger. 

What does a merger between two companies mean?

A merger is a concept used in corporate strategies that aim to combine two companies in order to function as one legal entity. Usually, the companies and organizations that agree to merging are considered equal in dimension, business processes and places on the market. The long term objective in this process is to gain a strong advantage over your competitors. 

However, there is a plethora of reasons for which two companies or organisations agree to a merger: 

• After the merger, the companies will be safe in terms of resources, so the magnitude of operations can increase;
• Companies wish to enter a new market or diversify their catalogue of products and services, thus increasing profits;
• The stakeholders of the initial companies and organisations will get stakes in the new company after the merger;
• Mergers also take place when companies want to purchase assets that they need to develop and turn into profit internally;
• In order to reduce fiscal obligations, a company or organisation which generates substantial taxable income may enter into a merger agreement with another company or organisation with significant reported fiscal losses in order to achieve fiscal balance;
• A merger between two equal companies will eliminate competition between them, thus reducing the price of commercials and market strategies used in the competition between the two. Even more, the reduction of prices will satisfy customers and increase sales. 
• Mergers could help companies improve the way they control, plan and use financial resources. 

Types of mergers between companies 

• Congeneric merger or product expansion

This type of merger occurs between companies that offer services in the same niche, but they each have their own service or product. In this case, the merger is undergone in order to add a new product to the existing portfolio of a company. As a consequence of the merger, the companies have the opportunity of accessing a larger pool of customers and reaching higher market shares. 

• Conglomerates merger

A conglomerates merger refers to a merger of companies that carry out their activities independently of one another, but share a part of the income. Syndication occurs only if the stakeholders’ income increases. 

• Merger for the expansion of the market 

Companies which operate on different markets, but have similar products, undergo a merger process in order to access a bigger market and a richer pool of customers. 

• Horizontal merger

Companies that operate on less accessed niches, where the competition is less fierce, merge with other companies in order to cover a bigger market. A horizontal merger is a type of consolidation for companies which sell similar products and services on a market that is small or just starting to develop. 

• Vertical merger

A vertical merger occurs between two companies that operate in the same industry and produce similar commodities, but have differences between production processes and the supply chain. Such mergers happen in order to increase synergy, control over the supply chain and efficiency.

Steps to follow in the merger process between companies 

• Check the liquidity and financial standing of your own company

Before you commit to a merger process, make sure to analyze profits, the turnover and that financial standing of the company for a certain period of time in order to be ready for transactions and investments for which, even though you’ll split them with another company, you’ll require significant amounts of money that don’t destabilize the company. 

• Define the strategic objectives and the success factors of the company 

In order to figure out whether you really need a merger with another company and what type of merger is necessary for your company, try to answer the following questions: 

• Is my purpose to increase the current market share? 
• Do I want to increase the market with my products and services?
• Do I want to integrate new products, processes or human resources with different qualifications in my company’s portfolio? 
• Do I want to decrease the promotion costs and increase the company’s savings so that I can make the products more accessible to customers from a financial point of view? 
• Do I want to eliminate a strong competitor, extend a line of products or do I need a vertical merger? 

• Analyze the appropriate candidates for the merger

After you establish the reasons for which you want a merger with another company, but also what type of merger is right in order to expand and gain success, it’s time to analyze the right candidates. 

• Create a transition team 

Transitions and major changes, such as mergers, need a strong and functional team and a transition director. Each side needs a team, both the company that initiated the merger and the company that agreed to it, and both teams need to operate according to a well established working plan, based on the strategic objectives and success factors, a plan that needs to be revisited and edited as the measures and the dynamic between the two companies change. 

• Carefully plan the merger between the two companies

When eventually there’s the time for integration and total unity of processes, operations and cultures of the two companies, focus on reviewing and refreshing the plans you developed when the process was initially taken into consideration. Evaluate what processes, operations, goods and services generate significant value, what works and what doesn’t. All through the process remember that productivity and working speed are critical at this stage because any delay in deliverability will lead to failure. 

If you want to go through this process with another company in order to strengthen your market advantage, choose to be directed by an official specialist that can help you navigate the merger’s challenges a lot smoother!