A business merger involves two companies legally consolidating into a single company. This creates a new parent company with one combined stock, and usually results in the retiring of the original stocks and the creation of a new corporate structure with board members from both the old and new companies.
A successful merger is a big deal for any business, and many factors determine whether a company will benefit from M&A. Mergers can help businesses achieve scale and expand their customer base, for example, or give them a leg up against the dominant players in their industry. However, mergers also come with their own set of pitfalls and risks that must be considered carefully.
For instance, a failure to assess synergies can lead to excess costs. Companies often underestimate how long it takes to fully realize synergies after a merger is completed, and this can increase the cost of the transaction. It’s also important to be aware of the different types of business acquisition and merger structures, as each one may have unique tax and regulatory implications.
In addition, a study conducted by Ahern and Weston found that managerial ability plays a bigger role in M&A when the economy is changing rapidly. This suggests that managers make better decisions in times of crisis, which can have positive effects on the overall performance of the M&A transaction. However, this study found that managerial ability does not have a significant impact on M&A stock returns one year after the merger.
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