Merger And Amalgamation

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Merger And Amalgamation


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About Merger And Amalgamation

MERGER

Most companies are restructured through mergers and acquisitions. Although these terms are often used together or interchangeably, they are actually not the same thing. Mergers and acquisitions both expand the business externally. For example, when a business buys an existing business and instantly grows in size, increases its production levels, and has better chances for growth.

A merger occurs when two or more companies combine and create a new company. The companies in a merger typically are in the same industry or do similar things and want to either grow or diversify their offerings.

The process of creating a merger can be long and complicated. In many cases, it involves creating a shell partnership subsidiary that the surviving company uses to access its new assets. The surviving company can also buy the assets of the target company instead of purchasing its stock. The target company then settles its debts, pays shareholders, and slows down its operations.

If a large company merges with a smaller company and maintains its leadership and offices, most people say that that company has obtained the other company. When two fairly equal companies merge with each other, it is considered an alliance.

AMALGAMATION

An amalgamation occurs when one company takes over multiple companies. The combined corporations are then automatically liquidated. Amalgamations typically happen when larger companies take over smaller, less financially stable companies.

Types of Mergers and Amalgamations

Mergers

  • Horizontal, which is done to eliminate a competing business from the market
  • Vertical, where a company gives materials or services to the company it is acquiring, which concentrates operations and keeps the business moving seamlessly
  • Conglomerate, which is done to diversify a business's reach and products

Amalgamation

  • Nature of purchase, which happens when one company acquires a business that is discontinued and the shareholders of that organization don't have shares in the new company
  • Nature of merger, which combines the assets and liabilities of all companies and includes all shareholders in the new business.

Reasons

  • Expansion and Diversification
  • Optimum Economic Benefit
  • De-risking Strategy
  • Scaling up of operation for competitive advantages
  • Increase the Market capitalization
  • Cost reduction by reducing overheads
  • Increasing the efficiencies of operations
  • Tax benefits
  • Access foreign markets

Benefits

Some of the benefits of M&A deals have to do with efficiencies and others have to do with capabilities, such as:

Improved economies of scale.

By being able to purchase raw materials in greater quantities, for example, costs can be reduced.

Increased market share

Assuming the two companies are in the same industry, bringing their resources together may result in larger market share.

Increased distribution capabilities

By expanding geographically, companies may be able to add to their distribution network or expand its geographic service area.

Reduced labor costs

Eliminating staffing redundancies can help reduce costs.

Improved labor talent

Expanding the labor pool from which the new, larger company can draw can aid in growth and development.

Enhanced financial resources

The financial wherewithal of two companies is generally greater than one alone, making new investments possible.

Frequently Asked Questions

What do you mean by merger?

A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company's reach, expand into new segments, or gain market share.

What is merger strategy?

A merger is a corporate strategy of combining different companies into a single company in order to enhance the financial and operational strengths of both organizations.

Why do companies do mergers and acquisitions?

Mergers and acquisitions (M&A) refers to the consolidation of companies or assets. Companies seeking to sharpen focus often merge with companies that have deeper market penetration in a key area of operations.

What are the different types of mergers?

There are two types of conglomerate mergers: pure and mixed. Pure conglomerate mergers involve firms with nothing in common, while mixed conglomerate mergers involve firms that are looking for product extensions or market extensions.

How does a merger differ from an acquisition?

A merger occurs when two separate entities combine forces to create a new, joint organization. Meanwhile, an acquisition refers to the takeover of one entity by another. Mergers and acquisitions may be completed to expand a company's reach or gain market share in an attempt to create shareholder value.

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