A merger is when two companies on essentially equal footing agree to join together and become a single legal entity. These companies may be competitors, but they may also be firms that operate in different stages of the production process. In many cases, they may already have a strong relationship because one purchases products or services from the other. When they are not competitors, operating in different industries, this is a vertical merger.
Shared Intellectual Property
Two businesses that operate in different industry sectors often own important pieces of intellectual property such as copyrights and patents and engage in different types of research and development. For this reason, the copyrights and patents that each possesses are probably very different from those that the other possesses. In merging, however, two companies may be able to maximize output from all of their operations by pooling these varied intellectual assets.
Minimized Operating Costs
When two companies merge, they can minimize operating costs by consolidating common operations under one roof. For instance, if an agricultural company with a team of 30 accountants merges with a supermarket chain with a team of 90 accountants, they may only require a combined total of 100 accountants -- thus reducing the total amount of accountants that they must employ.
Internalized Profits
When two companies exist in a buyer-seller relationship, the buyer must always pay the seller more for its products or services than what it costs the seller to provide them. This excess amount is the seller's profit. However, when two such companies merge, the value of that profit is something that they internalize, allowing the former buyer to acquire the former seller's products or services for less than it otherwise would.
Streamlined Communication
When two companies communicate, legal and operational issues frequently stand as barriers between them, even when they have a close client-supplier relationship. However, by merging, they both come under the authority of a single management structure. This situation leads to an ability to break down such barriers to communication and allow the different departments to freely share information necessary to expedite business.
