Corporate mergers: key points to keep in mind

Corporate mergers: key points to keep in mind

Corporate mergers are among the most common business operations today. In a post-pandemic economic environment, highly digitalized and marked by increasing market volatility, they become a tool that allows a company to diversify markets and revenue streams, as well as quickly incorporate new technologies and digital capabilities from the acquired company.

Below are the main points to consider for carrying out a corporate merger, along with the advantages and disadvantages this operation may present in practice.

How corporate mergers work

A corporate merger is a commercial practice that involves the combination of two companies that, until the moment of their merger, operated as independent entities and, for reasons of business expansion, decide to unite their corporate and financial structures.

In other words, a corporate merger implies the dissolution of the corporate structures of Company A and Company B to form a new entity, Company C, distinct from the previous two. Unlike a business acquisition, where Company A disappears while Company B continues and expands, in a merger, both companies transform their composition and structure to create an entirely new organization.

This practice is becoming increasingly relevant due to the need for companies to adapt to artificial intelligence. Faced with the urgency of incorporating these technologies, many companies seek to merge with others to avoid falling behind.

Specifically, there is strong growth in mergers across various strategic sectors. In the infrastructure sector, for example, demographic growth and the development of smart cities drive the creation of greater synergies. In financial services, the pursuit of scale and technological innovation is also driving merger processes. In the energy sector, the path toward sustainability is similarly leading to mergers.

Benefits of corporate mergers

Despite their complexity, corporate mergers can generate highly beneficial outcomes for the parties involved. Key advantages include:

1. Optimization of production processes. Allows companies to improve internal processes, reduce redundancies, and increase operational efficiency.
2. Market expansion and synergies. Facilitates access to new markets and clients by leveraging commercial synergies and the combined product or service offerings of each company.
3. Business expansion and market influence. Expands the geographical and sectoral presence of companies, strengthening their competitive position and increasing market relevance.
4. Tax and fiscal advantages. In many countries, tax authorities offer incentives to merging companies, provided certain legal and administrative requirements are met, generating additional economic benefits.
5. Favorable financial context. The current financial landscape, characterized by increasingly flexible monetary policies, has reduced the cost of capital. In mergers, this allows companies to finance transactions more easily.
6. Rising valuation multiples. After years of contraction due to economic uncertainty, valuation multiples are recovering, representing a strategic opportunity to pursue mergers under more attractive financial conditions.
7. Private equity at historic highs. Private equity is experiencing record levels of available capital, leading to high competition for quality assets, many of which are acquired through mergers.

Potential challenges

To avoid potential issues or complications in a corporate merger, it is essential to analyze the impact on both companies in advance and design a solid legal framework to ensure the project’s success.

A key aspect is having an adequate financing plan that covers all stages of the process efficiently and securely.
However, the main recommendation for successfully executing a corporate merger is to have the support of a network of experts and professionals to manage the process. This ensures that the operation is completed smoothly while minimizing fiscal, commercial, or regulatory risks.

Letslaw is a legal firm that provides precisely this support: advising on mergers and acquisitions (M&A) processes for startups, scaleups, tech companies, and investors, ensuring that each merger is carried out safely, efficiently, and tailored to the specific needs of the client.