adminA merger is a legal transaction that joins two companies into one entity. This can be a strategic move to gain market share, lower operating costs, expand into new territories, or unite common products. The result is a more profitable company that shareholders can invest in, with benefits such as access to new markets and increased revenue.
A company may also opt to acquire another firm, which is more effective if the objective is quick entry into a new market, such as the acquisition of the oil company by Exxon in 1999. Acquisitions can also help to achieve economies of scale, resulting in savings on production costs through the purchasing power a larger firm can afford to generate.
Before a Merger can take place, both parties must have a strong motive to pursue the deal. This is typically determined during the valuation phase, when detailed information on each candidate is gathered and used to conduct a SWOT analysis. The analysis will provide a clear picture of each candidate’s strengths, weaknesses, opportunities and threats, and will inform the final valuation.
The next step is to decide how the companies will integrate following a successful M&A transaction. This is often a complex process, and involves integrating the culture of each former firm into that of the merged entity. Leaders need to communicate clearly, demonstrate the desired cultural changes and lead by example. It is important to monitor progress, growth and income closely after integration and make changes where necessary if the return on investment (ROI) is not where projections suggest it should be.
