By Claudia Pollak, Esq., Updated October 19, 2020
Mergers bring two businesses together into one, and the combination should benefit both businesses. Merging companies will often be comparable in size. This differs from an acquisition, which typically involves a larger company absorbing a smaller one.
An ideal merger will increase revenue and reduce overhead. Combining two companies should help eliminate duplicate costs such as rent for office space and budgets for marketing, accounting services, and other business expenses. At the same time, a merged company should be reaching more customers with expanded services. Individual companies that reached different markets benefit from joining forces and increasing their client base.
It is said that two minds are better than one, and mergers can capitalize on the strengths of each company. Leaders from one business might have more in-depth knowledge about a particular aspect, while leaders from the other business have better-developed skills in a different area. Having this knowledge and skill behind one entity often translates into innovation and greater success.
If you are considering a merger, remember that it means combining the assets and liabilities of both businesses. It is important to conduct due diligence and understand what each company is worth; the two companies should be worth more together than they were apart. A merged company should have increased creditworthiness and bargaining power with better access to debt and equity financing. Sometimes there are tax advantages associated with mergers. Ideally, a merger makes your business more valuable and increases the value of your equity.