A business merger is a process of two or more companies joining to form one company under new ownership. The transaction may involve share acquisitions, where the acquiring company purchases shares from shareholders of the acquired entity, or it may involve asset acquisitions, where the acquiring company takes over the assets and liabilities of the acquired entity. A business merger can be a complex process that requires legal and financial advice from an attorney with experience in M&A.
When companies merge, they must ensure that employees and customers are aware of how the merger will impact them. They should also prepare teams to manage the integration of all the aspects of the company operations that will be combined into a single business, such as IT systems and human resources.
Companies often choose to acquire other businesses for a variety of reasons, from diversifying their product lines and market reach to reducing the risk of fluctuations in a specific industry. Investopedia defines four categories of acquisitions and mergers, including horizontal, vertical, conglomerate and cogeneric.
In a horizontal merger, companies operate in the same industry and sell similar products to the same customer base. Examples include ketchup maker Heinz’s acquisition of the Kraft Food Group, which brought the company together under a single corporate identity. A vertical merger involves the combination of companies that provide the same services, such as CVS Health’s acquisition of Aetna, which brought together health insurance and pharmacy benefits. Conglomerate mergers combine companies in unrelated industries to reduce risk and gain access to a larger market or technology.
