How to Merge a Business

Mergers can capitalize businesses.

Merging a company with another company is an arrangement that takes advantage of each company's comparative advantage and generates economies of scale. Essentially, two companies agree to combine into a new, larger company. To merge, you need to do three basic things: acquire information, come to an agreement and issue stock.

Instructions

1. Establish whether you want a horizontal or vertical merger. While there are other types of mergers, these are the two main ones. A horizontal merger is when you merge with a company that is in exactly the same business as you, while a vertical merger is when you merge with a supplier or customer.

2. Research other companies once you've established whether you are going to be horizontal or vertical.

3. Sell the merger to key decision-makers by explaining how it will benefit both you and them.

4. Establish whether you are going to swap stock in your company for stock in the other company or the other way around. Alternatively, you could swap both companies' stocks for stock in a third company, which will be the product of your merger.

5. Set a ratio for the stock exchange. Mergers are not generally 1:1. The ratio will be based on the relative value of each company.

6. Inform the shareholders about the merger and follow through with the stock exchange.

Tips & Warnings

• Be careful not to confuse a merger with a takeover.

References

• Investopedia: Mergers and Acquisitions: Definition
• Investopedia: The Merger: What to Do When Companies Converge