A merger of equals is when two firms of about the same size come together to form a single new company. In a merger of equals, shareholders from both firms surrender their shares and receive securities issued by the new company. Companies may merge to gain market share or expand into new segments of their existing market. Usually, a merger of equals will increase shareholder value.
A Merger of Equals vs. Acquisition
A merger of equals is not the most accurate definition of a merger. Most merger activity, even friendly takeovers, sees one company acquire another. When one company is an acquirer, it is proper to call the transaction an acquisition. Because one company is the purchaser and the other is for sale, such a transaction cannot be viewed as a merger of equals.
Acquisitions can be friendly—where the target business agrees to the takeover—or may be forced against the will of the target company. Once one entity holds more than 50% of the target firm's shares and assets, they can gain control of the direction of the business.
For example, the creation of DaimlerChrysler saw both Daimler-Benz and Chrysler end individual operations. Because neither firm acquired the other and a new company was formed, this is considered a merger of equals.
Defining Leadership in a Merger of Equals
The countless moving parts of a merger of equals create significant challenges to achieving a smooth transition. Communication that defines executive roles and sets the tone for the new organization should happen quickly. This can sometimes be difficult, with inevitable internal politics and pre-existing loyalties competing for position in the new corporate order.
To prevent a slowdown in productivity and synergy realization (if not an all-out deal collapse), leadership should prioritize fact over emotion. Compare parallel roles and departments. Take an honest inventory of relative strengths and weaknesses of executives and teams. Decide who offers the best capabilities and act swiftly or set up the new organization accordingly.
After the Merger
Maintaining employee morale and engagement is extremely important. Leaders must convey a purpose and vision that transcends and evolves the original two companies. A purpose-driven transformation, along with a strong financial business case, is the two things that can make the difference to a diverse group of stakeholders.
Combining two disparate cultures is a significant challenge because culture matters. Leaders must redefine the company by focusing on cultural characteristics that align. Culture is one of the most significant factors that can doom a deal, and it’s hard to get right. Make sure to do a thorough cultural due diligence in the transaction process to ensure what looks good on paper also looks good in person.
It is not uncommon to see different types of companies come together. For instance, a technology company might merge with an original equipment manufacturer, or a financial services company could integrate a small start-up into a larger, established platform. These are the kinds of mergers that could present significant cultural challenges. In these situations, leadership must assess the landscape and determine a direction will be most advantageous to the whole.