A merger is the merging of two or more businesses into one new company.
When we talk about a merger, we are basically talking about a merger of two businesses into one new company. Both businesses agree that joining forces leads to better results in the future. Often, improving competitiveness is an important reason for merging into one organization.
A merger involves two owners, who often choose to jointly shape and run the new organization. The starting point is often that two businesses/shareholders each own 50 percent of the shares.
And a merger often results in a new identity for the merged businesses. Depending on organizational and fiscal aspects, at least one of the companies to be merged ceases to exist, but sometimes both.
Forms of merger
An acquisition is legally the same as a merger, but this term is commonly used for a merger between disparate parties; a large business acquires a smaller business. In general, three different forms of merger can be distinguished:
- The corporate merger(asset/liability transaction)
- The legal merger
- The share merger
There are different types of mergers:
Horizontal merger
A horizontal merger takes place between businesses in the same business or industry. It can lead to increased market share and competitive advantage.
Vertical merger
A vertical merger occurs between businesses at different stages of the supply chain. For example, a manufacturer may merge with a supplier to reduce costs and streamline production.
Conglomerate merger
A conglomerate merger involves businesses operating in completely different businesses. These mergers can provide diversification and risk diversification.
Example of merger
Here are some examples of well-known mergers:
- AirFrance and KLM
- Ziggo and Vodafone
- Aegon and ASR
- Plus and Coop
- PostNL and Sandd
An example of a merger that did not go through was that between RTL and Talpa. The Consumer and Market Authority (ACM) decided in early 2023 to ban the merger because the combination of RTL and Talpa would become too powerful in the media landscape. The regulator is the watchdog on fair competition and market forces. They check in advance whether businesses do not become too big as a result of a merger.
Advantages of merger
A merger is entered into to create a win-win relationship. It is therefore often referred to as the 1 + 1 = 3 situation. In terms of benefits, one can think of:
- Turnover increases because they can start serving each other's customers;
- Increase sales by allowing them to use each other's network, geography, brands, licenses, knowledge;
- Being able to put new products on the market faster by increasing sales capacity and capital;
- Saving on duplication of functions;
- Saving in housing costs by moving to one location.
Difference between a merger and an acquisition
A merger is the amalgamation of economic or social units that were previously independent. The major difference between a merger and an acquisition is that a merger implies equality between the two partners and an acquisition implies inequality; the acquiring party then takes control.
Why many mergers are unsuccessful
Integration. Poor integration of businesses is the most common cause of merger failure. Consider, for example, getting "hard" things aligned, such as financial systems, ERP systems, HR and CRM systems. But the biggest reason mergers fail to succeed is often a "soft" issue: the culture difference between the two companies.
