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A merger is a deal that combines two companies into a new company. Mergers and acquisitions (M&A) are used to broaden a company's reach, increase market share and expand into new markets. All of this is done to boost shareholder value. Businesses have a no-shop rule during a merger to prevent transactions or mergers by other companies. Get in touch with mergers & acquisitions consulting firms to learn more about the M&A types and work.
A merger is the voluntary combination of two businesses on roughly equal aspects into a separate legal entity. The firms that have agreed to merge are approximately equal in size and operational scale. As a result, the phrase "merger of equals" is occasionally used. Unlike mergers, acquisitions are not voluntary and encompass one firm actively buying another. Following a merger, current shareholders of original businesses receive shares of the new company. Mergers are most frequently used to boost market share, lower operating costs, expand into new markets, unite similar products, grow profits, and increase revenues.
Because of the massive amount of mergers, a lot of mergers & acquisitions consulting firms were established to allow shareholders to profit from mergers. The fund invests in the difference between the offer and trading prices. It makes investments in firms that have officially revealed a merger or acquisition. Since its initial conception in 1989, the fund has restored 5.8% per year (as of March 31, 2022). In 2022, the overall value of acquisitions and mergers increased to $2.6 trillion.
Depending on the goals of the companies involved, numerous types of mergers exist. A few of the most popular ones of mergers are listed below.
Conglomerate
This is a merger among a number of businesses engaged in unassociated business activities. The companies may operate in various industries or geographical regions. A pure conglomerate is made up of two companies that share nothing in common. In contrast, a blended conglomerate occurs when organisations engaged in unconnected business activities merge to gain market or product extensions. Companies with no intersecting factors will combine only if it feels right from the point of view of the shareholder's wealth, that is, when the organisations can strengthen cooperation, which includes boosting value, savings and performance. Mergers & acquisitions consulting firms help bring such non-similar firms together for good. A classic example of a conglomerate is when the American Broadcasting Company (ABC) merged with The Walt Disney Company in 1995.
Congeneric
A Product Extension merger is another name for a congeneric merger. It combines a group of companies that belong to the same sector with factors like marketing, technology, research & development and production process. A congeneric merger is when a brand-new product from a company is integrated with an existing product. When two firms merge as part of a product extension, eventually, they gain access to a wider group of consumers and, as a result, a larger market share. Citigroup's 1998 merger with Travelers Insurance is an example of a congeneric merger.
Market Expansion
A merger is a willful combination of two businesses on relatively similar terms into brand-new legal entities. This merger occurs when two companies sell similar products but stay competitive in different markets. Businesses that participate in product extension mergers hope to gain access to a larger market and, as a result, a larger client base. RBC Centura and Eagle Bancshares merged in 2002 to expand their markets.
Horizontal
A horizontal merger takes place when two businesses in the same sector merge. This merger is an integration between multiple competitors offering the same services or products. Because competition among fewer companies is higher, such mergers are common in industries with smaller firms aiming to create a bigger business with a higher market share. A horizontal merger is the 1998 merger of Chrysler and Daimler-Benz. Another example is the merging of T-Mobile and Sprint.
Vertical
A vertical merger occurs when two businesses that produce services or items for a product merge. This happens when two firms in the same industry combine their operations at different levels of a supply chain. Such mergers are intended to boost synergies obtained through cost reductions from a merger via one or more distribution companies. One of the most well-known vertical mergers occurred in 2000 when Time Warner, a media conglomerate, merged with the internet service provider America Online (AOL). Today there are a lot of mergers & acquisitions consulting services to take care of mergers and bring about a lot of benefits.
SPAC Merger
A SPAC (special-purpose acquisition company) merger occurs when a publicly listed SPAC raises capital through the public markets to purchase an operating company. The operating company merges with a SPAC to become a publicly traded corporation.
Reverse Merger
A reverse merger is also called a reverse takeover (RTO). It is the acquisition of a publicly traded company by a private company. Archipelago Holdings and the New York Stock Exchange (NYSE) accomplished a reverse merger in 2006.
For more than a decade, Fortius Consulting Services has provided business consulting and CFO services to companies in the UAE, Singapore, and India. Whether you are facing excessive expansion or cash-flow difficulties, we can help you navigate financial obstacles through assiduous planning. Similarly, we create advanced marketing and sales predictions to help you succeed in audits or IPOs.
An illustration of how mergers work and bring companies together is Anheuser-Busch InBev (BUD). Anheuser-Busch InBev was formed by the merger of three big global beverage companies: Anheuser-Busch (United States), Ambev (Brazil), and Interbrew (Belgium). The company was formed as a result of several mergers, consolidations, and market additions in the beer industry.
Ambev combined with Interbrew, joining the number 3 and 5 largest brewers. As Anheuser-Busch and Ambev integrated, they became the world's largest and second-largest brewers. Because it was an industry consolidation, but it also stretched the international presence of all the combined company's brands, this illustration reflects market extension and horizontal merger.
The biggest mergers have each cost more than $100 billion. Vodafone purchased Mannesmann for $181 billion in 2000, forming the most extensive mobile telecommunications company. In 2000, Time Warner and AOL vertically merged together for a $164 billion deal, widely regarded as one of the largest flops in history. Verizon Communications paid $130 billion for Vodafone's 45% stake in 2014 for Vodafone Wireless. Contact Fortius Consulting Services, one of the best business consulting and CFO services in the UAE, to learn more about mergers and acquisitions.
