how a merger works
a merger is the voluntary fusion of two companies on broadly equal terms into one new legal entity the firms that agree to merge are roughly equal in terms of size customers and scale of operations for this reason the term merger of equals is sometimes used acquisitions unlike mergers are generally not voluntary and involve one company actively purchasing another mergers are most commonly done to gain market share reduce operational costs expand to new territories unite common products grow revenues and increase profits all of which should benefit the firms shareholders after a merger shares of the new company are distributed to existing shareholders of both original businesses the total value of u s mergers and acquisitions for 2023 dropped to 1 33 trillion from 1 49 of the previous year 1types of mergersthere are various types of mergers depending on the companies goals companies in the technology healthcare retail and financial sectors will frequently merge here are some of the most common types of mergers this is a merger between two or more companies engaged in unrelated business activities the firms may operate in different industries or different geographical regions a pure conglomerate involves two firms that have nothing in common a mixed conglomerate on the other hand takes place between organizations that while operating in unrelated business activities are actually trying to gain product or market extensions through the merger companies with no overlapping factors will only merge if it makes sense from a shareholder wealth perspective that is if the companies can create synergy which includes enhancing value performance and cost savings a conglomerate merger was formed when the walt disney company merged with the american broadcasting company abc in 1995 2a congeneric merger is also known as a product extension merger this type combines two or more companies operating in the same market or sector with overlapping factors such as technology marketing production processes and research and development r d a product extension merger is achieved when a new product line from one company is added to an existing product line of the other company when two companies become one under a product extension they can gain access to a larger group of consumers and thus a larger market share an example of a congeneric merger is citigroup s 1998 union with travelers insurance two companies with complementing products 3this type of merger occurs between companies that sell the same products but compete in different markets companies that engage in a market extension merger seek to gain access to a bigger market and thus a bigger client base for instance to extend their markets eagle bancshares and rbc centura merged in 2002 4a merger is the voluntary fusion of two companies on broadly equal terms into a new legal entity a horizontal merger occurs between companies operating in the same industry the merger is typically part of consolidation between two or more competitors offering the same products or services such mergers are common in industries with fewer firms and the goal is to create a larger business with greater market share and economies of scale since competition among fewer companies tends to be higher the 1998 merger of daimler benz and chrysler is considered a horizontal merger 5