What is a Merger?

What is a Merger?

A merger is the voluntary melding of two companies into one, when the owners believe the change is mutually beneficial.

A merger could happen between two companies that were competitors, called a horizontal merger, or between companies who are part of the same supply chain, called a vertical merger. A merger between two companies who are based in the same industry but serve different markets could also be called a market extension.

Similarly, a concentric merger is one in which the management and technology centers of two companies in distinct industries are consolidated to capitalize on economies of scale. The same could be said for conglomerate style mergers which bring completely unrelated companies together under one roof.

Shareholders of the companies who have merged can exchange their old stock for the stock of the newly formed company. If a merger agreement is not met, an acquisition may take place, in which a financially stronger company will purchase the smaller or weaker one.

Mergers and Acquisitions (M&A) is an area of study and practice unto itself, and many professionals in the business and finance industry work solely in this sphere.

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