What is a merger?
Inspired by an article we recently read on CorporateFinanceInstitute.com.
A merger is defined as an agreement in which two companies join together to form one organization. These two companies become one legal entity. In most cases, these are brought about by reasons related to efficient supply chain management, intellectual property needs, or simply for the desire to gain market share in a given industry.
There are five different types of mergers that exist in the modern world:
- Horizontal merger: when two companies that are in direct competition with each other combine their product lines and markets
- Vertical merger: when two companies that are along the same supply chain, such as a retail company that provides parts or supplies to an industry merges with a company that supplies raw materials to that same industry
- Market-extension merger: when two companies in different markets that sell similar products or services combine forces to expand their available offerings and in turn their market share
- Product-extension merger: when two companies in the same market sell different but related products or services, such as an athletics apparel company combining with a footwear company
- Conglomerate merger: when two companies in unrelated business activities combine, such as an athletics apparel company combining with a tech company
At Transworld Business Advisors of Indiana, we focus on middle-market transactions or the merger process. We typically see opportunities for mergers when a few types of situations occur:
- Your company has earnings greater than one million dollars annually, as this indicates strong revenues and therefore potential.
- Your business is beyond the point of an individual buyer taking it over through purchase.
- Your company is in an industry that is currently being consolidated or “rolled up”, and the goal is for large players to continue to grow.
- Your business is growing at a fast pace and in a way that is attractive to those that need what you have or sell.
- You want to grow but also know it will take expertise or products that you do not have, yet you want to retain equity.
The next steps will typically include first and foremost understanding where your goals lie. Does one of the situations above apply to you? Do you feel the need to innovate for your future, increase capital, or simply open the door to the conversation? After you are able to clearly articulate the answers to these questions, then we want to review your options with you to help you understand the best next steps before moving into the third phase of valuation.
Once your business has value, we strategically assess the best buyers to approach through confidential communications and networking to market the sale. This will most likely lead to in-person meetings with prospective buyers, and those interested will submit Letters of Intent or LOIs. It is our goal to review these with you to help you understand the logistics and conditions of these offers before ultimately choosing the buyer and negotiating the sale. Transworld Business Advisors of Indiana specializes in transparent and open communication during this phase as we help you find the best situation for your future. This period takes time and may result in multiple negotiations to get the environment right and ready for your agreement. Lastly, we provide due diligence and oversight as you finalize the details and ultimately close the deal.
At Transworld Business Advisors of Indiana, we are a leader in marketing and selling businesses in your local market. In addition, we pride ourselves on being the “Go-To” resource for middle-market, merger, and acquisition transactions. If you feel that this applies to you, your best next step is to contact us today to learn more.