Mergers involve the combination of two companies into one. The new company will have a larger market share, enabling it to realise economies of scale and achieve greater success. In addition, the merger will reduce competition, which may lead to increased prices for customers. In this article, why mergers happen, we take a look at the process involved and the options available to you.
Free Initial Telephone Discussion
For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of company mergers, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What are the different types of merger?
- Product Extension Merger
Such mergers happen between businesses operating in the same market. The merger will result in the addition of a new product to one company’s existing product line. Companies can gain access to a broader consumer base and enhance their market share as a result of the merger.
- Conglomerate merger
A conglomerate merger is the amalgamation of businesses with unrelated operations. The merger will only occur if it boosts the stockholders’ wealth.
- Market extension merger
Companies that operate in distinct markets, but sell the same products, merge to get access to a broader market and more customers.
- Horizontal merger
Companies operating in markets with fewer competitors merge to expand their market share. A horizontal merger is a sort of consolidation of businesses that sell comparable goods or services. It eliminates competition; hence, economies of scale can be realised.
- Vertical merger
When companies in the same industry, but at separate levels of the supply chain, unite, this is known as a vertical merger. These mergers promote synergies, supply chain management, and efficiencies.
Why do mergers happen?
There are a number of reasons why mergers happen, and they can include:
Synergies
By integrating business activities, total performance efficiency tends to grow and overall expenses tend to decrease, because one company capitalises on the capabilities of the other.
Growth
In what is commonly referred to as a horizontal merger, acquirers simply purchase a competitor’s business for a fixed sum. For instance, a tea grower may decide to acquire a smaller competitor so that the latter may make more tea and enhance its sales to brand-loyal customers.
Enhance Supply-Chain Pricing Influence
By acquiring one of its suppliers or distributors, a company can eliminate a whole cost tier. Buying out a supplier, often known as a vertical merger, allows a corporation to save on the margins the supplier formerly added to the company’s costs. And by acquiring a distributor, a corporation may frequently ship its items at a lesser cost.
Eliminate Competition
Numerous mergers have permitted the acquirer to remove potential competition and increase market share. On the downside, a substantial premium is typically required to convince the shareholders of the target company to accept the offer. As a result of the corporation paying too much for the target company, it is not uncommon for the acquiring company’s shareholders to sell their shares and drive down the price.
What are the disadvantages of mergers?
- Mergers increase the price of goods and services, which is undesirable. A merger decreases competition and increases market share. Thus, the new company can establish a monopoly and raise the pricing of its goods and services.
- Creates communication gaps
The cultures of the companies that have decided to merge may differ. It may result in a communication breakdown and negatively impact the performance of the personnel.
- Creates unemployment
In an aggressive merger, one business may decide to dispose of the underperforming assets of the other. It may result in the loss of employment.
- Prevents economics of scale
In situations where companies share few similarities, it may be difficult to achieve synergies. In addition, a larger organisation may not be able to motivate people or reach the same level of control. Thus, it is possible that the new company will not be able to obtain economies of scale.
How we can help
We have a proven track record of helping clients deal with the process involved in company mergers. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to Contact Our Corporate Solicitors
It is important for you to be well informed about the issues and possible implications of a business merger. However, expert legal support is crucial in terms of ensuring your business is set up correctly.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Comments are closed.
