5 Surprising Things You Didn’t Know About Business Mergers

Business mergers, also called consolidations or amalgamations, are common procedures which join two or more companies to create a single organization. When the companies are small, a merger can be relatively simple. When the companies are large, the sheer diversity of assets and employees that need to be managed leads to a much more complicated procedure. That complexity has led to a bevy of laws, a diverse mix of business strategies, and a long history of unusual situations that the average person about which the average person has heard nothing.

They Remove Competition

Businesses can merge for any number of reasons, but one of the most common is to get rid of competition. A merger may be expensive, but it can give the acquiring company a chance to take over the smaller partner’s share of the market. This is especially common when the smaller company has a famous brand. In that case, the acquiring company will usually keep that brand in production, to make sure that no loyal customers are lost. This process allows famous brands to outlive the companies that created them.

This is also one of the biggest reasons that mergers are regulated. Most governments want to prevent monopolies, which could easily occur if too many businesses merged. These regulations did not stop businesses from merging because they can still eliminate competitors and grow at the same time, which justifies the action even if it is not sufficient to create a monopoly.

Vertical Integration

Most products require a supply chain of several companies. For example, furniture companies rely on other businesses to supply them with wood and lacquer, and those businesses rely on others to supply them with tools. Unifying all of those stages of production under a single business is much more efficient than keeping them separate, and the act of doing so is known as vertical integration.

This process drives just as many mergers as the desire to eliminate competition. It can dramatically reduce expenses and increase profits for everyone who is involved in both companies, so this method also has overwhelming support from many shareholders. This is not the only tool that businesses have to achieve vertical integration, but the convenience of it makes it one of the most popular.

They’re Expensive

A merger can be an administrative nightmare. Many companies will have some assets that overlap, and all redundant assets need to be sold off during the merger. Employees will need to meet new managers and adjust to working with teams that they have never met. Resolving the administrative problems takes a large amount of work, while the learning curve for the employees will often reduce their productivity for a short period of time. That drives up the cost of a merger, and means that an unwise merger can actually cost a business much more than it gains.

Culture Clash Hurts

Every corporation develops a unique culture over time. That culture can have an impact on the company’s management style, the expectations of employees, and even how it makes important business decisions. “When two companies merge, they need to find a way to integrate their cultures,” said Financial Business Solutions, Inc. If they don’t, productivity will suffer because people don’t know what to expect from each other. Morale will also suffer if one corporate culture encourages actions that the other would find unreasonable. This type of culture clash is one of the leading causes of business failures after a merger, and successful corporations have long since learned to investigate a potential partner’s corporate culture as deeply as they investigate their assets.

The Details Vary

A merger between two businesses is the corporate equivalent of a marriage. There are laws that govern the general structure of the relationship, but the details are up to the corporations that are involved. Details such as employee benefit plans, the deployment of resources, and even company structure get negotiated between the two businesses before the merger is finalized. Standardizing the process is essentially impossible because every corporation is unique. These negotiations provide plenty of work for lawyers during the merger process, and they are the reason that every employee should try to stay informed about changes that are made in their company during a merger.