A business merger is when two separate businesses join together into one entity, creating a single company with a common stock. It’s important to understand how these types of transactions work in order to make the right decisions for your own business.
Mergers can be both friendly and hostile. The most common, friendly acquisitions involve two companies in the same industry. However, they can also be between companies in different industries or in different geographic regions. A company can be acquired in exchange for cash, or it can be purchased by using the acquiring firm’s own stock. In the latter case, the shareholders of the acquired company receive shares in the acquiring company at a ratio proportional to the valuation of the target.
During the third merger wave, it was more common for companies to acquire firms in unrelated industries. This was often done to smooth out cyclical bumps in the market or to diversify. Today, companies are less likely to buy into completely different industries, but they may acquire a small part of an industry in order to gain access to that market.
The key to success in any business acquisition is careful planning and negotiation. The process involves drafting merger agreements, securities offering documents (if applicable), and disclosure documents for both shareholders and regulatory bodies. It’s also important to assess the results of a merger once it’s completed. Doing so will help ensure that all parties are meeting their obligations and that both entities are seeing a benefit from the deal.