All About Mergers You Need To Know

A Merger is often presented as a strategic tool in the corporate hands that finds its use in achieving efficiency by effective use of synergies. When a company combines with another, the share keepers of the transferor company obtains the major portions of the merged company as per the decided exchange ratio.

There are mainly five categories of mergers

  • Horizontal Mergers: This occurs among two companies that vend similar products to the same market. An attempt is made to create the more effective scale of economies.
  • Vertical type: This joins two different companies that come within the same supply chain. A potential buyer-seller relationship is maintained.
  • Market Extension type: This involves the merging of two firms that provide similar products and services and their successful introduction to such markets that lack such services.
  • Product Extension Merger: Conducts merging while selling products into the different niche of the same market.
  • Conglomerate type: This occurs between organizations that sell products to entirely different markets. The key advantage of this type is the diversity in the business portfolio.

Further, this type can be divided into pure and mixed types that have nothing in common and expecting for extending in markets respectively.

The major advantages of the mergers

  • It is cash-free kind of transaction and is totally free of tax payment for both the companies.
  • It gives a chance of realization for the smaller company, the potential benefits, and appreciation of being in the merged unit.
  • Moreover, the shareholders of smaller entities are offered a worth bigger pie of shares.
  • Merging of a private company to public one allows sharing and holding of public stock shares.
  • It effectively avoids the expensive and lengthy aspects of asset purchase for the acquirer.

Steps involved in merging

  1. An application of merging should be presented to the court by both the involved companies on part of compromise and planning.
  2. The court orders a direction after analyzing the working and reasonable perspectives of arrangement schemes.
  3. The court further issues a notice in respect to compromise and arrangement that contains the Terms and materialistic interest of board managers and debenture trustees.
  4. The fourth stage includes the quality uplift of the presented scheme by the members based on voting.
  5. A further step is about the court satisfaction and sanctioning of the bonafide scheme.
  6. And finally, the filing of the court order with the registrar.

The main reasons for merging may be considered as a case of

  • industry consolidation,
  • a factor for an uplifting position,
  • a kind of defensive move,
  • with respect to synergies,
  • the powerful entry to a market
  • Or to access unique skills and resources.