{"id":1731,"date":"2022-10-19T12:01:02","date_gmt":"2022-10-19T16:01:02","guid":{"rendered":"https:\/\/theforage.wpengine.com\/?p=1731"},"modified":"2024-03-19T09:36:23","modified_gmt":"2024-03-19T13:36:23","slug":"merger","status":"publish","type":"post","link":"https:\/\/theforage.wpengine.com\/skills\/merger","title":{"rendered":"What is a Merger? Definition, Types, and Examples"},"content":{"rendered":"\n

A merger takes place when two companies combine to form a new company. Companies merge to reduce competition, increase market share, introduce new products or services, improve operations, and, ultimately, drive more revenue<\/a>.\u00a0<\/p>\n\n\n\n

Understanding mergers is essential if you\u2019re considering a career path in mergers and acquisitions (M&A)<\/a>, a branch of investment banking<\/a> and corporate law<\/a> that oversees the purchase, sale, and incorporation of companies.<\/p>\n\n\n\n

What Is a Merger?<\/h2>\n\n\n\n

A merger is a business deal where two existing, independent companies combine to form a new, singular legal entity. Mergers are voluntary. Typically, both companies are of a similar size and scope and both stand to gain from the transaction.  <\/p>\n\n\n\n

Mergers happen for a variety of reasons: They can allow each company to enter a new market, sell a new product, or offer a new service. They can also reduce operational costs, improve management, change pricing models, or lower tax liabilities. Ultimately, companies merge to increase size, scale, and revenue. In other words, mergers help companies make more money.<\/p>\n\n\n\n\t

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Latham & Watkins Mergers and Acquisitions<\/h2>\n\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

Advise clients on a potential takeover offer with Latham & Watkins' Mergers & Acquisitions team in this free job simulation.\n<\/p>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t

\n\t\t\t\t\t\t\n\t\t\t\t\t\t\tEnroll now\t\t\t\t\t\t<\/a>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\n\t\t\t
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\n\t\t\t\t\t\tSkills you’ll build:<\/span>\n\t\t\t\t\t\tNDA review, issue spotting, contract negotiation, key contracts review, contract analysis, transaction document structuring, commercial legal advice\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t

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How Mergers Work <\/h2>\n\n\n\n

Mergers are often spearheaded and facilitated by an investment banker<\/a>. They source deals, value companies, forecast outcomes, and make sure both companies have their houses in order (a process known as due diligence<\/a>). Corporate lawyers also oversee M&A deals, ensuring, among other things, that the transaction complies with federal and state regulations.\u00a0<\/p>\n\n\n\n

Mergers are generally funded by cash, equity (stocks<\/a>), or both. When two companies merge, shareholders in each company are issued stock (equal to the value of their old stock) in the new company.<\/p>\n\n\n\n\t

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JPMorgan Investment Banking<\/h2>\n\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

Advise a client on a suitable M&A target to expand their operations in Asia in this free job simulation from JPMorgan.<\/p>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\t\t\tSkills you’ll build:<\/span>\n\t\t\t\t\t\tM&A screening, cross-team collaboration, company analysis, strategic rationale, M&A process understanding, modelling, DCF, presentations\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t

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Types of Mergers<\/h2>\n\n\n\n

Companies can merge in a variety of ways.<\/p>\n\n\n\n

Horizontal <\/h3>\n\n\n\n

Horizontal mergers occur when  two companies that already offer the same products or services combine. These mergers help companies reduce competition and dominate the market. For example, gas giant Exxon combined with gas giant Mobil back in 1998 to form ExxonMobil. At the time, that horizontal deal valued the new company at $81 billion<\/a>. <\/p>\n\n\n\n

Market Extension <\/h3>\n\n\n\n

A market extension merger is a horizontal merger that allows two companies that sell the same product to operate in a new market. For example, if a U.S. regional bank in the east merged with a U.S. regional bank in the west to form the U.S. Bank of the East and West, that would be a market extension merger. These types of consolidations help companies drive more revenue by expanding where they do business. <\/p>\n\n\n\n

Vertical <\/h3>\n\n\n\n

Companies merge vertically if the two companies operate within each other\u2019s supply chain. Think of a home construction company purchasing a window pane manufacturer or a winery buying a glass bottle manufacturer. Vertical mergers help companies reduce costs because they effectively cut out the middleman.  <\/p>\n\n\n\n\t

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Bank of America Investment Banking<\/h2>\n\t\t\t\t\t\t\t\t\t<\/div>\n\n\t\t\t\t\t\t\t\t\t

Build fundamental skills in M&A and investment banking in this free job simulation from Bank of America. <\/p>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t

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\n\t\t\t\t\t\tSkills you’ll build:<\/span>\n\t\t\t\t\t\tSWOT analysis, financial analysis, M&A screening, cross-team collaboration, ECM\/DCM, financial modeling, DCF, valuation, communication, presentations\t\t\t\t\t<\/p>\n\t\t\t\t\n\t\t\t\t\t\t\t\t\t

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Conglomerate <\/h3>\n\n\n\n

A merger is considered a conglomerate acquisition if the companies operate in separate industries and, at face value, have little to nothing in common from a business perspective. Think of a clothing company combining with a snack food manufacturer. Conglomerate mergers open up cross-selling opportunities, market extensions, and increased operational efficiencies. <\/p>\n\n\n\n

Cogeneric <\/h3>\n\n\n\n

Cogeneric mergers happen when companies that offer different products or services combine to operate in the same sphere and sell to the same customer base. These types of mergers allow companies to sell new products, which is why they\u2019re also known as product extension mergers. For instance, famous ketchup manufacturer H. J. Heinz Co. was able to make revenue off of The Kraft Foods Group\u2019s popular macaroni and cheese (and vice versa) once the companies merged to form The Kraft Heinz Company<\/a> back in 2015.<\/p>\n\n\n\n

SPAC <\/h3>\n\n\n\n

A special purpose acquisition company (SPAC)<\/a> is a publicly traded shell company made with the singular intent of merging with a private company. That merger allows the private company to go public. SPACs are an increasingly popular alternative to a traditional initial public offering (IPO)<\/a>. <\/p>\n\n\n\n

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Find Your Career Fit<\/h2>\n\n\n\n

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Pros and Cons of Mergers<\/h2>\n\n\n\n

Here are some of the most common advantages and disadvantages of mergers from a business perspective.  <\/p>\n\n\n\n

Pros<\/h3>\n\n\n\n