A business merger is the combination of two or more businesses in order to increase profitability, reduce competition and expand operations. This can occur through acquisitions, in which the acquiring company purchases assets or equity shares from the target company; a merger through partial contribution of assets, where one business absorbs the assets of another; and a reverse merger, in which a smaller business takes over a larger corporation. The type of merger pursued can have a significant impact on everything from integration planning to governance and shareholder dynamics.
There are many reasons why a business might choose to merge, from a need for scale to a desire to acquire valuable resources and technology. There are also a variety of merger types, ranging from horizontal and vertical mergers to conglomerate and reverse mergers. Choosing the right type of merger is vital to ensuring that commercial outcomes are delivered, as well as protecting shareholder wealth.
In a horizontal merger, companies from similar industries combine. This allows them to reduce competition, gain access to new markets and realize economies of scale. This is the most common type of business merger.
A vertical merger involves companies at different stages of production, such as a manufacturer merging with a supplier. This can help them streamline their supply chain and cut costs. For example, Apple merged with AuthenTec to produce and distribute the touch-ID sensor used in its products. This allowed it to control the entire product lifecycle from design to distribution.