A business merger is the legal joining of two companies to form one company with combined ownership. This can happen for many reasons, including expanding into new markets, adding technologies, reducing costs, eliminating competition, increasing revenue, or preparing for a future sale or investment.
Mergers provide economies of scale, allowing businesses to reduce operational expenses by buying in bulk and sharing overhead costs with other companies. They can also help businesses gain access to capital, as they are essentially pooling their resources and budgets together. However, large mergers can be difficult to execute and can face scrutiny from regulators, affecting deal approvals and integration.
Acquisitions may offer companies quick entry into foreign markets, and the ability to leverage local market knowledge and distribution networks. For example, the recent acquisition of foodpanda in Taiwan by Uber Eats allows Uber to leverage the company’s extensive network of restaurants and brand recognition, while accelerating its growth in the country.
When a company acquires another, it must undergo a full financial audit and valuation to determine whether the deal is financially sound and in the interests of its shareholders. In addition, a thorough review of existing contracts and corporate relationships is essential to ensure a seamless transition.
A consolidation is a statutory method of acquisition that is authorized by some state business entity statutes. It involves one company acquiring all shares of one or more classes of the outstanding shares of another corporation and replacing them with its own stock. The disappearing entities must issue a plan of consolidation and file articles of consolidation to effect the transaction.