What is a merger or acquisition of companies and why are they carried out?
Mergers and acquisitions are part of a business strategy in which two or more companies join together as one entity to grow, gain competitiveness in the market, and strengthen themselves.
A merger can be defined as the union of two or more legal entities that combine their assets to form a new entity or to strengthen an existing one.
There are various forms of mergers, the most common being:
Complete merger, where the companies merge to form a new entity under a new name. Merger where one entity absorbs the assets of the other and retains its name. Merger where entities contribute part of their assets to form a new entity, without any of the original entities disappearing.
On the other hand, an acquisition occurs when one entity buys the shareholding of another. The acquiring entity gains control of all the shares and assets of the other entity, and the name of the acquiring legal entity is retained.
Reasons why companies seek to merge:
Some of the reasons behind these types of negotiations are as follows:
Purchase or merger of a competing company in the market: this aims to strengthen a strong position in the market, achieve better financial stability, reduce costs, or acquire new resources for production. Reaching new markets: joining with a company operating in different geographical areas where the company does not currently operate, in order to increase market share and expand. Integration with suppliers: purchasing or merging with a raw material supplier to produce their own inputs and reduce production costs. Product diversification: when two companies with little or no relation in the market merge to expand their product portfolio. Similarly, when one company offers complementary products to those of the other.
In Costa Rica, there is the Commission to Promote Competition (COPROCOM), an entity attached to the Ministry of Economy, Industry, and Commerce, whose purpose is to ensure compliance with the Law for the Promotion of Competition and Effective Consumer Protection No. 7472. This law promotes fair competition among companies and investigates and sanctions monopolistic practices and other restrictions on the efficient functioning of the market.
