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Case StudiesMerger
A merger occurs when two or more companies combined to achieve greater efficiencies of scale and productivity. This is accomplished through the elimination of duplicated plant, equipment, and staff, and the reallocation of capital assets to increase sales and profits in the enlarged company. Usually, mergers occur in a consensual setting where executives from the target company help those from the purchaser in a due diligence process to ensure that the deal is beneficial to both parties. Mergers are used to diversify, innovate, gain distribution, increase market share, and vertically integrate. Companies acquiring through a merger are usually seeking a complementary advantage to strengthen their business and bring a more valuable product set to a larger customer base.
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How Strategic Mergers Drive Growth, Integration, and Market Expansion
Companies with strong products yet underdeveloped distribution seek merger partners that have strong customer bases they can sell into. Companies with strong distribution seek merger partners that have strong complementary products that will increase their customer spend. Other major merger rationales include regional expansion, capacity expansion, and increased vertical integration. Middle market companies reliant on outsourced supply chains are increasingly bringing outsourced functions in-house through executing mergers. Mergers can be effected through cash, stock, or other forms of deferred purchase consideration such as roll-over stock, earnouts, or seller notes. Most mergers result in one management team taking over the combined company. Mergers are increasingly used to accelerate the growth of middle market companies in industries that are consolidating.
Frequently Asked Question
1. Is it wise to take 100% stock as payment in a merger?
It depends on the valuation and size of the acquiring company. If the acquiring company is a small private company, it is not advisable. If the acquiring company is a large public company with a large valuation, it is acceptable.
2. Why would I merge instead of selling outright?
If you do not want to exit the company but want to become part of a larger company for stability reasons, a merger can work. However, you lose control and the ability to manage the company and time your exit the way you see fit.
3. Do most mergers work?
Mergers have a mixed track record due to cultural differences between organizations and power struggles between management. Some work very well due to clear goals and management actions. Some bog down due to internal inertia.
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