What are Mergers? Advantages & Disadvantages of mergers in business

Mergers are a fairly common occurrence in the business world. Mergers occur for many reasons, but most commonly they happen because two companies need to grow and can’t do it independently of each other. When this happens, one company purchases the other company and merges them together under one name or brand. This is advantageous to both parties as it allows for more business growth without having to spend time starting up another company. This blog post introduces what mergers are in business and how they work!

What are Mergers?

Mergers are the combining of two or more companies to form one larger company. They typically occur because the firms are in similar industries or share common goals and objectives, but they can also be done out of desperation for survival if one firm is failing. The purpose of a merger is to create a larger company with more resources than either individual business had on its own. When this occurs, the new company will have increased financial stability and better ability to serve customers. Given that mergers involve two businesses coming together, it's important that the management teams from both sides get along well enough to work side-by-side successfully (and sometimes even merge their corporate cultures).

For example, one of the reasons why General Electric merged with Honeywell, is because both are similar companies in that they are large businesses that have grown through mergers and acquisitions. They also produce roughly the same products for the market, thus sharing many of the same customers.

Differences between mergers and acquisitions

Acquisitions are quite similar to mergers in terms of what they are, but are also very different in many other aspects.

Mergers are when two companies come together and become one under a new name. There is no change in management or outside leadership for the business, only the combining of businesses. This often involves the exchange of shares between the two companies.

Acquisitions are very different in this way. While acquisitions also involve the joining of two businesses, there is change to management and leadership within one business, which requires heavy negotiating between both parties. This often involves the exchange of shares, but not always.

Advantages of mergers in business

Mergers bring many benefits to the business:

Both companies in a merger may become stronger thank to shared resources.

Mergers are beneficial for both parties involved. The companies merging will benefit by being able to share information, resources, and back office personnel, all of which will save them money. This, in turn, gives the company that was acquired more resources to work with. This enables them to increase their market share and grow even faster than before since they have access to resources they didn't have before.

Economies of scale are increased by mergers.

As noted above, one of the benefits for both parties is the sharing of resources and information. This is also true for things like back office, such as facilities and employees. By merging the companies together, they are able to operate with less overhead, thus saving each company money.

A merger can help avoid replication.

Mergers can help a business avoid replication in its industry. This is because the mission and vision of a similar company that already exists will meet many similarities to your own. By joining forces, you're able to work with someone who has a similar mindset as your business instead of going it alone and potentially replicating an idea or product already out there.

A merger can help expands business into new geographic areas.

By merging with other similar companies, a business can reach new geographic areas that they never would have been able to do on their own. This is because there are now more resources and a larger presence in these new areas, which enables the company to accomplish things previously out of reach.

A merger can save a company from going bankrupt.

Mergers can also help a business avoid bankruptcy. When one company is struggling, the best thing they can do to save themselves is merge with another company that has more power and resources than they do. This gives them a chance to grow and stabilize.

Disadvantages of mergers in business

Besides, there are possible disadvantages when business conduct a merger

There may be layoffs following a merger

Following an acquisition or merger, there may be layoffs. This is because the company that acquires you is looking for ways to cut costs and save money which they can do by eliminating jobs that overlap with yours. While this is good for the acquiring company, it isn't always great for the employees of the company being acquired.

The culture of the company may change

Following a merger, there may be changes to the core values and ideology of the merging companies. This is because these things were formed based on the individuals that headed them up. When they come together under one new name, all of this information is combined and sometimes altered, which can reduce morale among employees who are not happy with these changes.

There may be changes in leadership

Following a merger, there may be changes in leadership. This can stem from several reasons. The acquiring company may want to place one of their own executives at the helm of the new company or they may choose to combine leaders together into one role which could end up changing the dynamic of the team that was already in place and cause rifts between employees.

Since the merging companies will be expected to work together following a merger, there may be a period of time where they both lose their sense of direction and identity. This is because each had their own mission, vision and values which they will have to put on hold while they work together. This can lead to a decrease in morale for employees who are either not aware of the changes taking place or unhappy about them.

There may be a period of growth where the company is unstable.

Following a merger, you will enter into a period of growth and restructuring. This means that there will most likely be changes to the structure of the newly merged entity, which can lead to instability during this time. The employees will also experience this turbulence as they try to adjust to the new company and its new leadership.

Employees may be concerned about the future of their jobs.

Mergers can cause uncertainty among employees, as many of them will worry about whether or not they'll still have a job following the acquisition. If there is no clear answer given to this question, it could lead to lower morale and productivity levels.

Preparation before a merger

Once you've made the decision to merge with another business, there are several things you need to prepare for.

Know what you're getting into.

Make sure you know why the other company approached you and what they want to gain by merging with your business. If possible, do some research and find out more about this company so that you can understand their motives and goals better.

Know if it's time to merge or not.

Before you accept a merger offer, you have to make sure the timing is right. Have you reached your growth potential? Are you struggling? Do you want to sell instead? These are all questions you need to answer before committing yourself to joining forces with another business.

Know what's involved in becoming part of the other company.

During negotiations, you'll have to decide who will be in charge of your company, what your new name will be and how this change will affect customers. You may also have to agree on a buyout price since you might end up losing some control over the mergers due to compensation expectations.

Know what changes are coming to both companies.

During negotiations, you might decide that there will need to be some changes to your business and that of the company interested in merging with yours. This could include changing the name and/or logo, as well as restructuring and revising certain policies and procedures.

Know what your responsibilities are after a merger takes place.

You have been awarded a seat on the board of directors, which means that you have been entrusted with helping your company to succeed even as it becomes part of another's. You may also be required to take on other roles such as legal adviser and financial specialist.

Steps to carry out a merger

In order to have a smooth transition, you have to plan out the steps that will need to be taken from start to finish. This means having a definitive timeline and a list of responsibilities for all parties involved.

Step 1. Come up with a pre-merger strategy.

The first step is coming up with an overall strategy for how things will go down. For many of the steps, you can prepare ahead of time by training employees on how to handle particular situations during this transition.

Step 2. Hold the negotiations.

You and your partner(s) will need to get together and agree on everything from logistics to compensation, including buyout price. Be sure to discuss the impact of a merger on customers, investors and employees before anything goes final.

Step 3. Get employees informed.

Once you've made the agreement and both parties have signed the merger agreement, you need to inform your employees about the changes that will take place. You may also have to create a media campaign that alerts everyone who might be affected by this change.

Step 4. Decide who will be running the new company.

Once you have an idea of how to merge your two companies, you need to decide on a leader or leaders for this venture. You may choose co-CEOs, a CEO and CFO, or even one individual strong enough to rule over both parties. It all depends on what you can agree on.

Step 5. Hold extensive training sessions before launch.

Your employees will need to be trained on how your company works now that you are part of another's business model, policies and procedures. These sessions often take place a few weeks or even months before the official merger date. It is important that everyone knows what they should be doing, as well as what to expect from the merger.

Step 6. Merge the companies.

With all your employees on board and informed, you can now bring both parties together as one new company complete with a new name and logo that represents the best of both worlds. You may also have to merge computer systems, banking accounts and other business assets.

Step 7. Announce the merger.

After you have been running under one name for a while, it is time to make a formal announcement to your customers and the press about the new company name and logo. This will be followed by a full-scale media campaign that features everything from commercials to billboards to social media accounts.

Conclusion

Mergers are a great way to grow your business and expand its reach. However, it is important for you to be aware of the potential risks involved in this decision-making process. You need to know what changes might occur as well as how employees will react before starting negotiations with another company that may want to merge with yours. This article has provided some information on steps you can take during these pre-merger stages so that things go more smoothly when they do happen.

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