Document Title: Mergers and importance of mergers

Paper code: 13079

Mergers and importance of mergers

A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions are commonly done to expand a company's reach, expand into new segments, or gain market share. There are three types of mergers. In a horizontal merger, companies at the same stage in the same industry combine for more economic power, to diversify, or to win greater market share. A vertical merger involves the acquisition of a firm that serves an earlier or later stage of the production or sales process, such as a supplier or sales outlet. In a conglomerate merger, unrelated businesses come together to reduce risk through diversification.

A merger is a consolidation of two entities to form a single entity. When two companies are combined to form one, a merger has occurred (Lan, et al., 2019). In a merger, the two combined entities survive as a legal entity, hence, the legal entity formed is a combination of the assets and liabilities of both companies. Neither of the old companies retain their former names and structure, instead consolidating assets to create something new.