A merger involves the strategic combination of two entities to create a single, larger company. The goal is typically to enhance competitive standing, spread risks, or tap into business opportunities that are beyond the scope of any individual company. An acquisition, on the other hand, is when a company purchases another and assimilates its assets or operations into its own entity.
Companies merge to gain market share, reduce operating costs, enter new territories, unite common products, grow revenues, and increase profits. The transaction can be funded by cash, equity (stocks), or a mixture of both, and shareholders in the acquired company are usually issued shares in the new company, often at a premium to their original investment.
A successful M&A requires careful due diligence and planning. During this stage, a target company’s financial health and legal issues should be examined closely, as they could potentially come back to haunt the M&A process down the line.
M&A success relies heavily on a competent transition team that can meld existing workflows, employees and cultures to make the new company operate more efficiently than either of its predecessors. A lack of focus on this key factor will ultimately undermine the potential value of a merger.
Once a merger is complete, it’s critical that leadership provide a clear roadmap for how the combined company will proceed and communicate openly with employees throughout the M&A process. Failure to do so can lead to a loss of employee morale and talent, creating cultural conflict that will eradicate the benefits of any synergy that may have been created.