Merger of companies: classification and motives

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:48

Mergers and acquisitions of companies is the consolidation of capital and business, which occurs at the level of macro- and microeconomics. As a result of these processes, not very significant firms disappear from the market, and large ones appear instead.

A merger of companies is a combination of several business entities in order to form a new unit in the economy. It occurs in three types:

1) Asset merger. The owners of the companies participating in the merger transfer (as their contribution) the right to control their organizations. However, the companies continue to operate and retain all rights.

2) Merge forms. Companies that have merged into one are no longer legal entities and tax payers. A new, newly formed organization begins to manage assets and liabilities to customers.

3) Joining. In this case, one of the merged companies functions as before, while the rest cease to exist, all their duties and rights are transferred to the remaining organization.

Absorption is sucha transaction that is made with the intent to establish control over an economic entity. It is considered concluded when more than 30% of the shares of the company being acquired are bought.

Merger of companies: classification

By the nature of the integration of firms, they distinguish:

1) Vertical merge. This is an association of several companies, in which one of them supplies raw materials to another. The cost of production, of course, in this case falls sharply, and profits rise accordingly.

2) Horizontal merge. Companies that produce the same product merge. Together they can develop better, competition is significantly reduced.

3) Parallel merger. Companies that produce related products merge. For example, one firm produces printers, and the second produces paint for them.

4) Circular merge. Firms that are not connected by production and sales relations are merging.

5) Reorganization - the merger of such companies that are involved in different business areas.

Depending on how the company's management relates to the transaction, there are:

1) Hostile mergers.

2) Friendly.

Merger of companies: motives for the deal

They are built on the basis of conflicts between the interests of the manager and the owner. And this does not always take into account economic feasibility. So, the motives are as follows:

1) Striving for continuous growth.

2) Individual motivesmanager.

3) Scale up production.

4) Strive to provide positive performance in a short period.

Influence on the country's economy

Most economists argue that mergers and takeovers are commonplace in a market system. Not only that, such a reshuffle is even useful to prevent stagnation and make the business more efficient. But not everyone thinks so. Some company executives argue that both takeovers and mergers of companies absolutely do not contribute to the development of the nation's economy. On the contrary, they make competition unfair and divert funds not to progress, but to constant defense and struggle.