Businesses face many decisions and challenges when they’re considering consolidation. Choosing the right structure can make or break commercial outcomes, such as enhanced revenue streams and optimized operational costs. The choice of merger type also shapes integration planning, governance and shareholder dynamics. The most successful mergers are based on sound research and expert advice.
A business merger is a legal process that legally consolidates two separate companies into one, merging assets and debt into a new entity. The resulting entity will take on the name of the purchasing company, or it may retain its own identity and remain independent. Mergers and acquisitions are similar in some ways, as they both result in business consolidation, but the differences can be significant.
Horizontal mergers combine companies in the same industry to gain economies of scale, such as gas giants Exxon and Mobil combining back in 1998. Conglomerate mergers unite companies with unrelated industries, such as the 2000 merger of AOL and Time Warner, which combined internet services and cable television to create the foundation for today’s media landscape.
Market extension mergers are an effective way to expand a business’s market reach by merging with a competitor in a different market, such as Eagle Bancshares and RBC Centura combining in 2002 to enhance their retail banking services. These types of mergers are usually negotiated on an as-needed basis and can be a good option for smaller businesses looking to gain market share.