Company mergers are fascinating because they bring immense value to customers by reducing the costs of service/product, provide services into new markets, prevent closure of unprofitable businesses, and avoid service/product duplication. Mergers and Acquisitions can provide similar market benefits, but differ in many ways and it’s important to understand the differences and when each is appropriate. In this blog, let’s take a look into mergers.
Mergers Vs. Acquisitions
Mergers and acquisitions are not the same. The difference between mergers and acquisitions is simple:
- Mergers combine two companies into one new entity.
- Acquisitions do not create a new organization. Instead, the acquiring company absorbs the purchased business
Reasons Companies Participate in Mergers
Company mergers can be beneficial, and some of the reasons for a merger rather than maintaining two separate companies are:
- Value Creation: To increase wealth of their shareholders by creating synergies that add efficiencies revenues or costs.
- Diversification: to increase the scope of products that a company offers.
- Acquisition of Assets: To obtain assets that cannot be attained otherwise.
Here is an example of some of the above reasons.
Company A wants to expand operations into Canada. Company B already has supply chains and contracts in Canada and can use the extra funding to expand further. Company A may purchase Company B because they’re well established in Canada, and they can reduce initial investments needed to enter the market.
Since revenue already exists, the merging may make sense from an investment standpoint, too.
What is a Challenge for Human Resource Management During Mergers?
Mergers can result in a rapid success or failure. Human resource management is crucial to the success of a merger, and there are many challenges these individuals will face. A few issues that may arise are:
- Company cultures do not mix well, and HR must take steps to integrate both cultures together
- Talent retention, especially when downsizing, can be a difficult challenge. Companies can lose valuable talent to competitors.
- Benefits and contracts can be difficult to stay in place, especially after they’ve lapsed
Therefore, Human resources management during a merger must be considered so that all parties remain happy during the transition. When company cultures clash or key talent leaves during or after the merger, it can lead to failure.
Key Considerations Before Merging
Before proceeding with a merger, companies must evaluate several critical factors to ensure a successful integration. A thorough financial analysis is essential to assess the economic benefits and risks involved. Compatibility of company cultures should also be examined to prevent clashes that could disrupt operations.
Additionally, understanding the regulatory environment is crucial to avoid legal complications. Finally, businesses must develop a clear integration plan outlining how resources, personnel, and operations will be combined to achieve the desired synergies.
Largest Mergers in History
There have been many successful mergers throughout history that combine major corporations into industry behemoths. A few of the biggest mergers include:
- America Online and Time Warner hold the record for the largest merger in history, with a value of $360 billion.
- Vodafone’s takeover of Mannesmann remains the largest price paid for a company at $183 billion and occurred in 1999.
- Warner Communications and Time Inc. formed Time Warner Cable in an acquisition worth $15.2 billion.
- Dow Chemical and DuPont engaged in a mega-merger in 2017 that cost $130 billion and is expected to lead to $3 billion in annual synergies.
AOL and Time Warner are also on the list of top failed mergers and acquisitions in history because less than a decade after its purchase, AOL was spun off, as was Time Warner. The dot-com bubble burst and the expected merger’s potential was never realized.
Other mergers that didn’t work out were Google and Motorola, Microsoft and Nokia and Daimler-Benz and Chrysler.
Company Mergers Summary
We hope you enjoyed our overview of company mergers. We uncovered the big differentiators between mergers and acquisitions. We dug into the reasons companies participate in mergers. We also looked at the largest historical mergers. Here are more articles about global business.
