FAQ: What Is a Company Merger? (How It Works and How To Prepare)

By Indeed Editorial Team

Published April 8, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Businesses and corporations often face changes, such as mergers. This is when two companies become one. Knowing the elements of a company merger can help you understand and adjust during a time of change. In this article, we discuss what company merging is, how it works, how it varies from acquisition and how you can prepare for this change.

What is company merging?

Company merging is the combining of two or more business entities. Mergers usually refer to two companies that operate in similar fields and have similar scales. Businesses typically use mergers to lower costs, reach new markets or create new products. When companies combine, you may experience a change in management, operations, business structure and personnel.

Read more: What Is a Merger? A Guide to Company Mergers

What are the types of mergers?

Here are the most common types of mergers that occur between companies:

Horizontal merger

A horizontal merger is when businesses that were competitors become one entity. The two businesses typically have the same purpose, process or product and operate in the same market. This merger reduces competition and increases the business' presence in the market.

Vertical merger

A vertical merger occurs between two companies with complementary purposes or companies that specialize in two different areas of the same production process. Vertical mergers may consolidate or reduce supply chain or production procedures and costs. This process provides greater control over the production process and market.

Market-extension merger

A market-extension merger involves companies that have similar products or services but sell in different markets. The businesses may sell to different demographics, locations or clients. Merging the two companies into one new entity allows the new business to reach both markets and increase sales.

Product-extension merger

A product-extension merger combines two companies that serve the same market with different products. The merger allows the new business to provide both products from the same source and increase its hold on the market. Product-extension mergers increase profits by expanding the volume and range of products and consumers.

Conglomerate merger

Conglomerate mergers refer to the merging of two or more companies with unrelated business processes and products. Merging these businesses increases profits by diversifying the consumer base and entering multiple industries. Conglomerates often include a level of risk as the new business adjusts to the new products, markets and operations.

How does a company merger work?

A merger works by combining and assimilating the operations, stocks, personnel and legal dealings of all companies involved. Your organization may hire legal or business experts to advise them through the restructuring of the company. As an employee, you may experience a change in operations, management and benefits. Communicating with human resources or other supervisors can help you prepare for and understand changes.

Related: What It Means To Merge Companies and How It Works

What's the difference between a merger and an acquisition?

A merger and an acquisition include similar processes, terms and ideas, but they have a few key differences , including:

Resulting organizations

One way to distinguish a merger from an acquisition is to identify the resulting business entities. A merger occurs when two equal businesses combine and result in the creation of a new entity. The new business establishes a new brand or name and undergoes restructuring to generate future processes, products and services. In an acquisition, the businesses maintain the name and brand of the acquiring company and the operations remain similar to the original processes. An acquisition maintains the original form and entity of the company.

Benefiting parties

Mergers and acquisitions each benefit different groups involved. In a merger, both organizations benefit because the partnership allows them to continue their operations and provides greater availability of resources and opportunity to reach consumers. In an acquisition, the company being acquired ceases to exist, and the corporation that acts as the buyer receives the benefits of their resources, clients and presence in the market. A merger mutually benefits both organizations, while an acquisition provides a greater advantage to the acquiring business.

Related: Acquisition vs. Merger: What's the Difference?

Do employees have any influence over a merger decision?

Merger decisions can have a large effect on the stock and shareholders of a company. Shareholders vote on whether they want the merger to occur, and according to state law, the merger requires approval by those who hold the majority of the target company's shares. As an employee, you may hold shares in the organization and have the opportunity to vote on the merger.

How to prepare for a merger

Here are some steps you can take to prepare for when your employer goes through a merger:

1. Research the company

Understanding the general duties, purpose and operations of the company your organization is merging with can help you gain an idea of new products, markets and procedures that may become part of the organization's values. Having a basic knowledge of the people, locations and cultures held by the incoming company adds the comfort of familiarity during a time of change.

2. Identify contacts

A company merger can create complex changes and communications for employees. Before and during the merger process, you can identify coworkers, supervisors and HR representatives who have a firm understanding of the merger and the ideas being implemented. Having a trusted and stable source of information ensures you receive clear and consistent communication and can voice concerns or opinions.

3. Ask for the new org chart

During a merger, administrative teams reevaluate and edit an org chart. Obtaining a copy of the new chart allows you to view the new personnel and structures of your organization. The updated chart may also convey new roles, duties and goals for your specific position. Viewing this updated structure can help you summarize and understand the values, goals and structure of the new business entity created by the merger and your role in the newly founded company.

Related: Org Structure: Definition, Types and Tips

4. Stay organized

During a merger, employees may receive new paperwork, contracts, handbooks and information. Staying current on the information provided can help ensure that you understand and view all the necessary communications. Your new management may also ask for you to submit paperwork such as past reports, newly signed documents and personal forms. Confirm with your supervisor which documents to submit and ensure that your information stays organized and accessible.

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