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Meaning Of Merger? Importance And It’s Types

What does merger mean? Mergers are basically when two businesses of similar size unite fairly to create one entity. That is known as a merger. There are a variety of mergers as well as various motives for why businesses complete mergers.

Benefits Of Mergers

It is the voluntary joining of two companies on similar terms to form a new legal entity. The two companies that choose to merge are virtually alike in terms of size, customer base employees, and the scale of operation. That is why the phrase “merger of equals” is frequently employed. Mergers are typically used to increase market share, improve the efficiency of operations, expand to new regions, combine common products, boost profits, and increase revenues. All of which are beneficial to shareholders of the companies. After a merger, shares of the new business are distributed to existing shareholders of both businesses. In the wake of several mergers, it was decided to create a mutual fund that gives investors the possibility to gain from mergers. 

The Merger is a Growth Factor

Inorganic growth via mergers is often a fast method for firms to earn high profits compared to organic growth. That is because the company will attain the latest technology without risks in developing them internally.

Stronger Market Power

The new entity formed after the merger will gain a higher market share and gain the ability to influence the price. Mergers can also result in higher market power since the business will be more in charge of the supply chain and will be able to stay away from disruptions from outside sources.

Synergistic Effect

The main reason for mergers is to generate synergies where the resulting company is more powerful than the two businesses individually. Synergies could be due to cost-cutting or increased incomes.

Revenue Synergies are:

Usually, the result of cross-selling. An increase in market share. Increasing prices. Cost synergy can be defined as a reduction in operating expenses.

Tax Benefits

A company can reduce the tax burden through a merger. However, tax benefits also need to be scrutinized where one firm earns impressive earnings that are tax-deductible while another is liable for the tax losses carried forward. In the event of acquiring the business with tax losses, the buyer can use the tax loss to reduce its tax burden. However, mergers aren’t generally done solely to reduce taxation.


Companies operating in cyclical industries require diversification of their cash flows to avoid suffering huge losses when they slow down in their business. Conversely, achieving a target within an industry that is not cyclical allows the company to diversify and reduce its risk to the market.

Merger Types

There are many kinds of mergers based on the purpose of the businesses involved. However, this article will focus on the most common types of mergers here.

1. Horizontal Merger

What is horizontal merger? Horizontal merger is the result of firms operating in the same field. The merger usually is used to fortify two or more companies that offer the same range of products or services. The mergers that are made are typically in sectors with fewer firms. The goal is to establish a larger company with a greater market share.

2. Vertical Merger

What is vertical merger? A vertical merger happens when two firms operating on different levels in the same supply chain in the same industry join their business operations. These mergers are made to lower the costs resulting from merging with one or more supply firms. A vertical merger example occurred in 2000 when the internet company America Online (AOL) merged with Time Warner.

3. Congeneric Merger

A congeneric merger is a Product Extension merger. In this kind of merger, we combine two or more businesses that operate within the same market or industrial areas with common factors like automation, technology marketing, advertising, production procedures, and research and development. A merger that is a product extension is when a new product line developed by one company is incorporated into the existing product line of the other. If two companies join under the umbrella of a product extension, they can gain access to a wider range of customers and, consequently, have a greater market share.


A common merger example is the Citigroup merger in 1998, with Travelers Insurance, two companies that offer complementary products.

4. Conglomerate Merger

What is conglomerate merger? It’s a merger of two or more companies engaged in business operations that are not related. They may operate in different fields or different geographic regions. Their business strategies are completely distinct from each other. There is nothing else that is similar between these two firms in every aspect of their business. It is an absolute conglomerate merger. A mixed conglomerate, on the contrary, is a process between companies that, although operating in separate business ventures, are seeking to obtain an extension of their product or market through mergers. Companies that do not have overlapping factors can only join if it is beneficial from shareholder wealth or, more specifically, that the businesses can generate synergies. That includes improving value, performance, and cost-efficiency.


The Walt Disney Company merged with the American Broadcasting Company (ABC) in 1995.

WBS Vision & Values

WBS’s mission is to become an advisor of the highest quality for the world’s most innovative businesses and industry leaders. We earn trust every day by providing value-added strategic and strategic solutions and extraordinary support on issues that are crucial to the success of our clients. We are Success-based consultants. Satisfaction, confidence, and respect are our main goals. We will achieve our Vision by fostering the development of a “one-firm” culture that reflects our deep commitment to our clients, our communities, and our fellow employees. Our customers are our joy.


Capabilities refer to the accumulated skills and knowledge that allow firms to efficiently enhance their operations and allocate resources. For example, our knowledge of marketing allows us to gain market knowledge, build relationships with customers, and quickly respond to the customers’ demands. We recognize customers’ needs on the market and handle these needs with utmost the top of our list. That is the reality behind the success of WBS.  

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