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A primer on mergers

To succeed most businesses need to change and grow. These changes can take multiple forms depending on what type of business it is and the specific circumstances it finds that it is facing. In some situations the best way for a business to proceed is to merge with another one. This course of action can result in the generation of capital or a production savings. It can also lead to the businesses involved sharing information that makes competing in the market easier to do.

There are multiple reasons why a business might merge with another including changes in:

  • Business strategies
  • The economy
  • Consumer needs

Depending on why a merger is being sought it might be categorized as a horizontal merger, a vertical merger or a conglomeration. In the latter situation the businesses merging will have completely different products. In the case of a horizontal merger two competing companies will merge. Vertical mergers are the result when businesses that come together complement each other.

In general, mergers are highly regulated. Without the approval of the Department of Justice and Federal Trade Commission, a merger cannot occur. In determining whether a merger is legal the agencies want to make sure that no large monopolies are formed that could control the marketplace and engage in illegal pricing.

Because there is so much on the line when businesses decide to merge, it is important that the matter is handled in a way that ensures everything is done correctly. In most cases this entails working with a lawyer who understands the merger process.

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