A merger occurs when two companies with similar strategies combine to form a new company. The resulting entity has higher bargaining power with suppliers, customers, and competitors due to increased size, improved financial stability, and cost efficiency. Mergers also create opportunities for diversification and expansion into new markets.
A key goal in M&A is to find a target company that aligns with your strategic profile, so you can achieve synergies that will help propel your organization’s growth. The process starts with a high level evaluation of the company, including discussions to explore how your goals and values align and potential synergies that can be realized. This step is often followed by a deeper dive into the business and financial reports of the target.
The process is a lot more involved than just a quick evaluation of a potential target, so it may take a few months before the deal is finalized. During this time, you’ll work on detailed plans to integrate the newly formed entity into your organization. This includes staffing and cultural integration, technology integration, and other operational activities.
In a merger, shareholders receive shares of the new entity in exchange for their existing shares. The number of shares each shareholder receives will depend on the terms of the transaction and can include cash, stock, or a combination of both. Typically, shareholders don’t get paid for their existing shares in the target company unless they were a significant equity stakeholder.