What are the advantages of a merger?

On Behalf of | Jul 27, 2017 | Blog

The business section is filled with news about corporate mergers and acquisitions. It’s often when a large company purchases a smaller one, but mergers can also occur when two similarly-sized organizations decide to become one. There are many high-profile examples in wide ranging industries: Exxon-Mobil, Time Warner and America Online, and the beer industry’s SABMiller-AB InBev mergers are all recent, well-known examples. While these are household names, small businesses frequently consider mergers and consolidations when it makes business sense as well.

Benefits of a merger

While some advantages are obvious, reasons vary from scale to competition. Here are five common benefits:

  • To become bigger
  • To pre-empt competition
  • To improve economies of scale
  • To dominate a business sector
  • For tax advantages

As the list above shows, the reasons mostly affect bottom line and growth trajectory. Mergers allow faster growth, acquisition of technology or assets, and may offer tax incentives. Mergers also provide an out if a founder wishes to leave a company.

Dangers of a merger

For every success story like Exxon-Mobil, there are instances where the merger is a poor fit and costs both companies. A few notable examples include Daimler-Benz and Chrysler, Sears and Kmart and Quaker and Snapple. Here are a few reasons why mergers are difficult to complete:

  • Integration process of merging two companies into one
  • Different management styles or structures
  • Culture clash between companies
  • Legal complications

A closer look at legal issues

While all business moves are challenging, legal issues can make or break a merger or acquisition. Antitrust and regulatory laws present enough red tape for an individual business. Merging two companies into one opens the business to scrupulous review. Legal matters aren’t just regulatory, though. It also involves the business’s core structure. Merging different units is a complex topic with technology, investor, human resources and real estate concerns.

Before considering any acquisition or business merger, it’s important to sit down with an experienced business law attorney who will review your current organization, your potential partner and how the two line up together. Mergers offer great opportunity for growth, but with significant risk. Before taking the leap, conduct a thorough investigation to make sure that everything is compatible.