A business merger occurs when two companies combine their assets and liabilities into a single entity. This is considered a change in ownership and is generally registered with the state. A lawyer may be able to guide a small business through the process and ensure that all steps are taken to properly transfer ownership. For example, the new company might need to open new bank accounts, obtain a new state and federal tax ID, and apply for licenses and permits. The lawyers may also assist the business in resolving shareholder disputes and answering any questions that might arise during the transaction.
There are many reasons why a business might consider a merger, including the desire to expand into new markets or diversify its products. It could also be a way to strengthen its position ahead of a planned sale or investment. M&A is typically a long process and requires a thorough due diligence to ensure that the deal will work.
In theory, M&A should make a firm more productive through the redistribution of resources. However, the reality is that M&A may not be as productive as expected if there are conflicts between managers and shareholders or owners. According to agency theory, conflicts between managers and principals often occur because of inadequate monitoring and conflicting incentives and incomplete or asymmetric information.
The type of merger chosen will impact everything from integration planning to governance and shareholder dynamics. For instance, a horizontal merger occurs when companies in the same industry merge, whereas a vertical merger is when two businesses at different stages of production combine. There are also market-extension and product-extension mergers. For example, a food franchise like Papa Murphy’s might merge with the MTY Food Group to improve its advertising and marketing capabilities and gain access to more customers.