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How well do you understand company mergers?

When most people hear a business-related term like merger, they automatically envision boardrooms in global business centers where corporate titans hammer out a new billion-dollar business venture via a wholly arcane process. In other words, people associate mergers with big business.

While it's true that mergers are among the primary methods through which Fortune 500 companies expand, it's also true that small business owners can also achieve growth via this same process.      

As true as this may be, it still possible that the majority of small business owners are unfamiliar with this concept and/or unsure how it would ever stand to benefit them. In recognition of this reality, today's post, the first in a series, will attempt to shed some light on what this seemingly esoteric topic.

What exactly is a merger?

At its core, a merger is a deal between two existing business entities to combine and form one new business entity. Statistics show that 2015 alone saw $4.30 trillion worth of mergers and acquisitions.

Why would companies consider a merger?  

While a complete answer to this question is clearly beyond the scope of a single blog post, some of the more common reasons for a merger include expansion of corporate reach, expansion into new markets and expansion of market share.

Other reasons include the notion of synergy, meaning the idea that an amalgamation of business assets and activities will increase performance and lower costs, as well as the simple idea of eliminating the competition.

Are there different types of mergers?   

There are at least five types of mergers, all of which are named according to the purpose of the combination, the economic function envisioned and the relationship between the existing entities. The five merger types include conglomerate, market extension, horizontal, product extension and vertical merger.

We'll continue this discussion in our next post. In the meantime, consider speaking with a skilled legal professional if you are a small to mid-size business owner with questions about any complex banking or business law matter.

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