When is it a good idea to merge with another company?

Businesses merge for a variety of reasons. The basic idea behind merging is synergy -- that the combined performance and value of the companies will exceed the value of each company's individual parts.

If your company provides a good or service that is used with another company's goods to create a finished product, then you and the other company may benefit from better pricing and more control over manufacturing if you merge. Mergers in the automobile industry are good examples of how companies combine to make a supply chain more efficient.

In highly competitive industries, it may make sense for competitors to merge. Through joining operations, you and your competitor may encompass a bigger market share and reduce your operating costs. In any case, an accurate valuation of each business is crucial.

Two companies may be in the same industry, but they operate in different markets. A merger may be the best way for the companies to extend their market reach and diversify operations.

Product extension is the basic purpose of other mergers. If your company makes a product that functions with another product in the same market, then you may be able to drive profit by pairing and marketing the products together.

Some companies in totally different industries choose to merge and create conglomerates. A conglomerate merger may mix markets and products, or a conglomerate may continue to compete purely in two separate markets.

For any business considering a merger or an acquisition, it is crucial to have sound legal guidance. Shulman, Hodges & Bastian LLP is a full-service business law firm that handles transactions for clients throughout California. Please visit our Business Transactions overview to learn more.

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