merger of companies

The merger of companies is the process through which two or more independent companies are combined, deciding to dissolve individually to unite their assets, all this in order to increase the assets of the new legal entity that was formed, expanding the possibilities of investment to obtain higher income in the future, for a merger to be considered successful, the value of the acquisition must be less than the current value of the cash flow, otherwise it is considered a failure.

These mergers can be classified into:

  • Merger by absorption: it is so called because during the merger process the assets of the legal entities involved in said process are absorbed and the capital of the company that arises increases. The companies that merged are dissolved, while the partners that were part of it become part of the absorbing company. Mergers by absorption are characterized in that the right that the partners have to separate does not exist, nor is the capital increase mandatory for the total amount of the value that the assets acquired in the operation possess.
  • Pure merger: occurs when two or more companies or organizations unify to give rise to a new one, these companies are dissolved but there is no liquidation, this is used to unite the investment and commercial criteria that two different organizations of the same market have. .

Another classification that is used for the functions is according to economic importance and competition and they are the following:

  • Horizontal merger: this occurs at the time when two or more companies that belong to the same area of ​​activity, decide to join, in order to increase their capital and reduce production costs, in order to obtain a greater presence. in the market, which increases the ability to set prices that trap the consumer and eliminate competition.
  • Conglomerate: these are companies that do not compete or have any relationship with each other, they only share central functions, such as accounting, financial control and administration.
  • Vertical integration: it is defined as a partnership between a company and its supplier, in order to acquire its own raw material, it can also be the partnership of the company with a client in order to be able to have its own product.