You might be eyeing up a partner with complementary strengths. Maybe you’re in a fragmented sector and want to create scale. Or perhaps you’re thinking about the long game, and how combining with another business could strengthen your position before a future sale or investment.
Whatever the driver, you’re at an early but important stage: exploring whether a merger could work, sounding out possible partners, and starting to think about what the process would involve. You might not be ready to engage a full M&A legal team just yet, but you want to go into early conversations with your eyes open.
We’ll walk through the key legal structures used in mergers, explain the pros and cons of each, and highlight some of the practical and strategic issues to think about before negotiations begin. Whether you’re planning a full integration or a more collaborative structure, the choices you make early on can have lasting consequences, from governance and tax to culture and brand.
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Types of mergers
Before diving into deal terms or due diligence, it helps to understand the different kinds of mergers available, and which structure is most likely to deliver the commercial outcomes you're after. Not all mergers are created equal, and the type you pursue will shape everything from integration planning to governance and shareholder dynamics.
Here’s a summary of the main types of mergers you might come across:
Horizontal merger
This is a merger between two companies operating in the same industry and at the same stage of production (e.g. two competitors in the same market).
Advantages:
- Increases market share and reduces competition
- Potential for significant cost synergies through shared operations
- Greater pricing power and economies of scale
Disadvantages:
- High regulatory scrutiny, especially around competition law
- Cultural clashes if businesses are too similar yet independently run
- Risk of customer or employee churn if consolidation is poorly managed
Vertical merger
This is a merger between companies at different stages of the supply chain (e.g. a manufacturer merging with a supplier or distributor).
Advantages:
- Tighter control over the supply chain
- Improved efficiency and cost control
- Reduces reliance on third parties
Disadvantages:
- Integration complexity across very different operations
- Potential dilution of focus if core competencies differ
- May trigger regulatory issues if it significantly alters market dynamics
Congeneric merger
This is a merger between companies in related industries or with shared markets, but not direct competitors (e.g. a telecoms firm merging with a broadband provider).
Advantages:
- Access to new customers with overlapping interests
- Cross-selling opportunities
- Shared expertise and brand synergy
Disadvantages:
- Integration can be awkward without a clear overlap in operations
- Value creation may be slower or harder to measure
- Risk of confusing the market without a clear narrative
Market-extension merger
This is a merger between two companies that sell the same products but in different geographical markets.
Advantages:
- Instant access to new markets
- Easier expansion without starting from scratch
- Shared brand or product lines can gain broader traction
Disadvantages:
- Operational challenges in managing across different regions
- Regulatory differences between jurisdictions
- May require rebranding or repositioning for new audiences
Product-extension merger
This is a merger between companies offering different but related products in the same market.
Advantages:
- Broader product offering for existing customers
- Increased spend per customer
- Stronger platform for future product development
Disadvantages:
- Complex product integration across systems and sales teams
- Potential confusion or dilution of brand if not managed carefully
- Customers may not see the value unless the link is clearly articulated
Conglomerate merger
This is a merger between companies in completely unrelated businesses.
Advantages:
- Diversification of revenue streams
- Spreads risk across different sectors
- May unlock cross-industry innovation
Disadvantages:
- Limited operational synergy: often no shared infrastructure or customers
- Harder to manage and govern effectively
- May reduce investor clarity around business strategy
Reverse merger
This where a private company merges with a publicly listed company (often a shell or dormant entity), enabling it to go public without a traditional IPO.
Advantages:
- Faster and often cheaper than a standard IPO
- Allows private companies quicker access to public markets and funding
- Can offer greater control over timing and process
Disadvantages:
- Can carry legacy liabilities or reputational issues from the listed entity
- Public market compliance requirements kick in immediately
- Often under greater investor scrutiny from day one
Understanding these structures is a useful first step in shaping your merger strategy, not just from a legal perspective, but from a commercial one. The type of merger you pursue should reflect your goals, your market, and the kind of integration you're willing (or able) to manage.
Key factors to consider in a merger
A merger can be transformative, but only if it’s built on the right foundation. Before you move from exploratory conversations to formal agreements, it’s worth stepping back and pressure-testing a few fundamentals. The most successful mergers tend to have four things in common: the right partner, thorough preparation, expert advice, and a clear plan for what happens next.
Picking the right partner
It sounds obvious, but many mergers fall apart because the two businesses aren’t truly aligned, strategically, culturally, or operationally. A merger isn’t just a financial transaction; it’s a long-term partnership. That means shared goals, compatible working styles, and mutual trust.
Here are some of the questions to ask early on:
- Do you have a shared vision for the future business?
- Are your values, leadership styles and cultures broadly compatible?
- What will the combined business look like in 6, 12, or 24 months?
- Who’s in charge, and how will decisions be made?
A good fit on paper doesn’t always translate in practice. If you’re not aligned on the intangibles, no amount of synergy will fix it.
Due diligence
Once you’ve identified a likely partner, due diligence is your safety net. It’s not just about uncovering risks, it’s about confirming that what you’re buying into is what it claims to be.
Key areas to cover include:
- Financial health and liabilities
- Customer and supplier contracts
- Employment terms and disputes
- IP ownership, licences, and regulatory issues
- Tax exposure
Thorough due diligence gives you a clearer picture of what you’re getting into, and can help shape the deal terms, pricing, and post-merger integration plan.
Having a clear plan in place
Mergers can be exciting. But they can also be chaotic without a proper roadmap. Before anything is signed, make sure you’ve agreed a high-level integration plan, on that sets out what happens after the deal completes.
That includes:
- Who runs what, and what the new management structure looks like
- How teams, systems, and processes will be combined (or kept separate)
- What success looks like, and how you’ll measure it
You don’t need every detail ironed out on day one. But clarity on roles, responsibilities and goals will help avoid confusion and conflict later on.
Find out how a merger could affect your company – from legal risks to structural changes.
Onboarding legal advisors early
One of the biggest mistakes we see? Waiting too long to bring in legal support.
Legal advisers aren’t just there to draft contracts. A good advisor will help you:
- Choose the right merger structure
- Spot red flags in due diligence
- Shape the deal to match your commercial goals
- Anticipate regulatory or tax risks
- Handle stakeholder approvals, board consents, and compliance obligations
Getting your legal team involved early, even before heads of terms are signed, can save you time, money, and stress down the line. And if you're exploring merger options seriously, it's never too early to start those conversations.
If you’re ready to onboard legal advisors, you can find out how to legally prepare for a merger in our step-by-step guide.
What’s the right merger for me?
By this stage, you might be thinking: All this sounds promising, but how do I know if a merger is the right move for my business?
That’s the question every leadership team has to answer for itself. And while no two mergers are identical, there are a few guiding principles that can help you shape your thinking.
First: what’s the problem you’re solving or the opportunity you’re chasing? Are you looking to scale quickly? Enter new markets? Access new talent or technology? Strengthen your supply chain? The structure and partner you choose should serve that goal, not the other way around.
Second: what does success look like 12–24 months after the merger? Will the business be easier to run, more profitable, or better positioned for a sale or investment? If the answer is ‘we’re not sure,’ it’s worth pausing to define your desired outcome more clearly.
Third: what are you willing to compromise on, and what’s non-negotiable? In any merger, there will be trade-offs. Whether it’s control, brand identity, or board seats, knowing where you can flex (and where you can’t) makes the negotiation process far smoother.
And finally: do you have the capacity, internal and external, to manage the process well? Mergers demand time, focus, and expertise. If you’re already stretched, bringing in the right legal and commercial advisers early will make a big difference to how smoothly things run.
Thinking of merging?
Our corporate team advises UK businesses on mergers of all shapes and sizes, from early-stage structuring through to due diligence, negotiation, and integration. Whether you’re exploring your first merger or refining a deal already in motion, we’ll help you approach it strategically and get the detail right.
Get in touch on 0800 689 1700, email us at enquiries@harperjames.co.uk, or fill out the short form below with your enquiry.
