A business merger occurs when two separate businesses join forces to form a single, new legal entity. Companies may do this for a variety of reasons, including market share growth, access to fresh resources, and even tax benefits. However, before a company considers M&A, it must conduct thorough due diligence and risk assessment. This includes assessing each company’s income statements, balance sheets and cash flows. It also requires examining intellectual property, analyzing pending lawsuits and regulatory concerns, and considering how management styles and organizational culture will align in the newly formed entity.
Companies that engage in a business merger often benefit from increased sales and profit margins. In addition, M&A can help to diversify a business by offering new products and services or entering new markets. This can also reduce a business’ dependence on cyclical demand or economic fluctuations, as well as increase financial strength and bargaining power with vendors and customers.
Another reason companies engage in M&A is to acquire assets or improve their production and distribution capacity. This can include acquiring equipment, raw materials, marketing budgets or talent pools that were previously exclusive to one company. Companies may also enter new markets through M&A by leveraging loyal consumers who are open to new product innovations emerging from a merger or acquisition.