Business / Reading time: ~ 8 Min.

Business Mergers & Acquisitions: Forms and examples

When two companies cooperate, the focus is not only on economic aspects. The different corporate cultures must also be brought together and customers and investors must be integrated. We tell you what needs to be considered in mergers and acquisitions and what options are available.

Definition and basics

A merger is a contract between two or more companies in which a cooperation is agreed according to a certain pattern. This can be a cooperation, a concentration or a merger. Cooperation between companies is either a two-way collaboration for a project that one company could not handle alone or a strategic alliance. The latter usually involves individual business areas that are brought together and centrally coordinated to achieve higher-level goals. In principle, however, the individual companies remain independent in the cooperation.

For concentration, on the other hand, each side gives up its economic sovereignty and the companies are placed under joint management, either completely or in business areas. Mergers involve a complete corporate merger in which each side relinquishes not only its economic but also its legal independence. The companies then usually operate under a new name. Irrespective of the respective procedure, the Cartel Office examines whether the merger will result in a dominant competitive advantage. If this is the case, it prohibits the companies from cooperating or merging.

Reasons and advantages

There are many different reasons for companies to merge. The reasons can be found at the individual company level as well as in general market developments. For example, a company may want to strengthen its competitiveness because it does not feel able to keep up with rapid market developments on its own. The desire to expand their own market position also drives many companies to enter into cooperative ventures. The aim is to maximise power and profits.

For a successful cooperation, the companies involved must act as equal partners. Photo: © NDABCREATIVITY/Adobe Stock

Moreover, regardless of market position, the sheer size of a company can just as easily be increased quickly through mergers. Expansion at home and abroad often becomes easier and tax advantages can be exploited.

If a company wants or needs to increase its efficiency overall or in certain business areas, cooperation also helps. Structural optimisations, rationalisations and cost reductions are then easier to achieve. Ultimately, this helps to minimise financial risks and achieve a better credit rating for a company.

Sometimes mergers are simply about accessing certain resources through another company that the own company does not have or that it finds very difficult to access. This can be materials and raw materials as well as personnel or expertise.

The different forms and directions in detail

Parallel to the basic models of cooperation, concentration and merger described above, business administration describes three directions in which mergers can go:

– Horizontal merger: Agreed between companies with the same production or trading level in order to strengthen their market position. Examples of such mergers are the union of bakery A and bakery B or mail-order company X with mail-order company Y.

– Vertical merger: In order to secure procurement and sales, companies that offer successive trading processes or production stages join forces. Examples of mergers are the merger of mail-order company X with logistics service provider Y or of Müller joinery and Meyer furniture store.

– Inorganic merger: In this case, companies join forces that actually have nothing in common because they operate in different sectors or production fields. The reason is that risks in their own sector are to be absorbed by participating in other sectors. An example is the merger of a brewery with a tobacco manufacturer. This creates conglomerates.

Forms of cooperation

Essentially, four concrete forms of cooperation can be distinguished:

– The occasional company is a cooperation of independent companies for a limited period of time. It can take the form of a consortium, in which the cooperation is focused on a specific project, or it can take the form of a consortium. The latter is usually founded to increase the financial strength of the participants and at the same time strengthen their market position. In principle, occasional companies are companies that are founded solely to pursue a joint project.

There are different ways in which companies can merge. Photo: © boonchok/Adobe Stock

– The community of interest has a longer-term cooperation in mind, which is founded for a specific purpose and usually works in the background. This may involve joint purchases, production or research. As a rule, a closed external presence is not planned for a community of interest; the unbureaucratic GbR is usually used as the legal form.

– The joint venture is a joint enterprise that is founded as a subsidiary of two independent companies. They share the financial risk of the joint venture and make their knowledge available for it. Nevertheless, the joint venture can act largely independently. This form of cooperation often occurs in the case of foreign investments by individual companies. For example, when the respective state sets limits on foreign companies in its market by demanding cooperation with domestic companies.

– Cartels and syndicates can also be mentioned as forms of cooperation, although they are mostly prohibited in Germany and many other countries. Cartels are intended to expand the market power of the cooperating companies and restrict competition. In this case, the member companies remain independent and cooperate without separate management on a purely contractual basis. Syndicates are a continued form of cartels that organise joint distribution among the members. Only in a few exceptions do the German Cartel Office and the European Union allow the formation of a cartel. Examples are fixed prices in the book trade and print press distribution as well as rationalisation and quotation cartels in small and medium-sized enterprises and agriculture.

Forms of concentration

If the economic independence of the companies is to be relinquished, the resulting concentration can take two forms:

– Combined as a group, the member companies retain their legal independence. If one company is dominant and at least one other is subordinate, this is called a subordinate group.
In contrast, a group of equals is a merger of companies of equal standing. The organisation of a group is either based on the parent company concept, in which a parent company manages the entire operational business.

Or it is a holding company concept. This works as follows: A parent company (holding company) holds shares in at least one subsidiary. This has tax advantages for all companies involved and protects assets in the event of liability. Overall, the holding concept can be a great help in building up assets.

– Combined as a merger, the participating companies give up both their financial and legal sovereignty. This can be done either through a new incorporation, in which at least two formerly independent companies join together. Or an absorption is carried out, in which one company joins the other, transfers its assets and dissolves itself completely.


The corporate cultures of the individual companies are the linchpin of mergers. Photo: © fizkes/Adobe Stock

In addition to the aforementioned contractual fixation of the cooperation, the voluntary nature of all sides is also a basic characteristic of a corporate merger. Only if the individual companies show a genuine willingness to cooperate and mutually exchange all relevant resources can such a cooperation be successful and lead to the desired goal.

Solid financing, sufficient personnel and enough time are needed to complete the merger. Absolute mutual trust is just as indispensable as a similar understanding of crucial business processes. Company cultures and philosophies should not diverge too much.

All parties involved should have sound knowledge of their market situation in order to be able to reasonably assess the opportunities and risks of a cooperation for themselves in advance. After all, it is important for all sides to derive the greatest possible benefit from the merger.

Disputes can be avoided by regular exchange of information on the current state of affairs between all parties involved and by clearly defining the competences for individual areas of cooperation. If interests do diverge, all companies need to be able to compromise.

Disadvantages and risks

Of course, a corporate merger does not always work out to the advantage of all involved. Most of the time this is due to the disregard of the individual corporate cultures. If these are neglected when planning the integration process, the cooperation is doomed to failure, because then the companies have to deal too much with themselves.

As a result, the existing business and the acquisition of new customers and orders are neglected. In general, there is a danger in mergers that the focus is too much on hard factors such as synergies and cost reduction.

Despite a declining M&A market, some acquisitions continue to make headlines. Photo: © Stock

Since mergers are usually very costly anyway, those involved are often tempted to give priority to projects with a quick impact. In these turbulent times, the core business is sometimes lost from sight.
It is important that the managers of the participating companies in particular represent the merger with conviction and set a positive example to employees, customers and business partners. Otherwise there is a risk that not all groups of people involved with the cooperating companies will be taken along in the integration process.

In addition, in many sectors there is the relentless advance of the market with constantly changing framework conditions. What is a good reason for a merger today may be obsolete tomorrow. Globalisation is constantly creating new competitors, technical development is advancing at a rapid pace and customer demands are constantly changing.

Often, however, companies rest too much on their laurels after a merger and no longer take sufficient account of the latest developments. It is therefore advisable to constantly check whether new alliances are needed. The more often these are concluded, the more routine companies become.

Prominent examples

Overall, the number of corporate transactions on the market that reflects takeovers and mergers has declined in recent years.

As a survey by the imaa Institute revealed, even before the Corona crisis, the “Mergers & Transactions Volume Acquisitions” industry reached a low of US$3.5 trillion in 2019, a level last seen in 2013. The crisis further depressed mergers and acquisitions: in 2020, the total volume was only US$2.8 trillion.
Nevertheless, some examples of mergers still make it into the media headlines time and again. This concerns not only takeovers and cooperations of particularly well-known companies, but also transactions that are questionable from an antitrust and social point of view, as well as those with a high financial volume.

Merger in the housing market

A current example of a controversial merger in Germany is that of the two largest private housing companies, Deutsche Wohnen and Vonovia. The latter has made a takeover offer of 18 billion euros to the former. In 2016, when an attempt was already made by Vonovia to swallow Deutsche Wohnen, its shareholders and CEO Michael Zahn still rejected this.

An agreement apparently failed at the time because of the too different attitudes and corporate cultures, which both sides believe they have overcome in the meantime. Although the second attempt in July 2021 also failed, both parties want to make a third attempt.

In this respect, there is now a mutual will to merge, which would create the largest private owner of residential real estate. The result would be a significant strengthening of the market position for Vonovia and Deutsche Wohnen. However, this is a not entirely unproblematic corporate merger in two respects.

One controversial merger is that of the two largest private housing companies: Deutsche Wohnen and Vonovia. Photo: © ah_fotobox / Adobe Stock

On the one hand, the prospect of market power naturally calls the Cartel Office into action, which is currently conducting an investigation into the case. There are calls from parts of politics and society for the Cartel Office to put a stop to the emergence of such a large corporation on the housing market.

Most economic experts, however, assume that the merger is not objectionable from an antitrust point of view. After all, the Federal Cartel Office had already given the green light for the merger planned in 2016.

In their justification at the time, the cartel watchdogs referred to a large number of private landlords, municipal housing companies, housing associations and other commercial providers in the main business locations of Vonovia and Deutsche Wohnen. These would oppose a dominant position and impairment of competition through a merger of the two companies.

On the other hand, this merger is also socially controversial on the housing market, as it comes at a time of sharply rising rents in major cities. Especially in Berlin, Vonovia and Deutsche Wohnen together would have a market share of about 10 percent of the total rental housing market.

This raises fears among tenants and interest groups that the emerging conglomerate could raise rents as it sees fit and play a decisive role in shaping the city’s building policy. Expropriation demands are the consequence.

What is needed here in connection with the merger is extensive, de-escalating communication to the outside by both companies. This has already been expressed in a concession that Vonovia and Deutsche Wohnen have signalled to tenants: According to an announcement, rents in Berlin are to increase by a maximum of one per cent per year over the next three years and by a value no higher than the rate of inflation in the two years thereafter. In addition, the two merger candidates do not want to pass on the full costs of energy renovations to the tenants.

Most expensive transaction in the mobile phone market

The biggest takeover in economic history took place right at the beginning of the new millennium. In February 2000, the British mobile phone company Vodafone swallowed the German industrial group Mannesmann for the equivalent of about 180 billion euros. This was preceded by a lengthy back and forth between the two sides.

Mannesmann originally started out as a producer of steel pipes and became big. In the 1990s, the Düsseldorf-based company then entered the digital market: Mannesmann received the licence to build the first private mobile network in Germany, the so-called D-Netz. This quickly made the company so successful that it was able to expand its business on a European level. In terms of turnover, the mobile telephony division significantly exceeded the previous analogue, industrial divisions of Mannesmann AG, so that it was soon declared the main business.

The emerging activities of the German group were a thorn in the side of the British telecommunications giant Vodafone, which also wanted to conquer the European mobile phone market for itself. At the end of the 1990s, Vodafone therefore began to make takeover offers to its competitor. These were initially rejected by the Mannesmann board and the German government.

But Mannesmann finally could no longer withstand the pressure from its own major shareholders and the financial lure of said record sum. The company lost its independence and was split up by Vodafone. This merger, which was publicly described as a “hostile takeover”, served not only to expand Vodafone’s market power, but also to eliminate a dangerous competitor.

As much as the two sides differed in terms of their corporate culture, Vodafone had to promote the takeover at the public level. Mannesmann initially countered with its own PR campaigns. Scurrilous advertising created even more media interest.

Since legal grey areas were treaded in the handling of the takeover, the public echo did not subside for a long time after the deal was sealed. Because the Mannesmann supervisory board paid out so-called recognition bonuses to important employees, CEO Klaus Esser, supervisory board head Josef Ackermann and others were accused of serious breach of trust, including aiding and abetting. This resulted in a court case that lasted for years and was finally dropped in exchange for the payment of fines.

Department stores’ deal: United in dislike

Another interesting example of a special corporate merger is that between the two German department stores’ chains Karstadt and Galeria Kaufhof. Due to the decline of their outdated business model as “everything under one roof” providers, the two chains had been increasingly in crisis since the 1980s.

The two department stores’ chains Karstadt and Kaufhof merged in 2018, and the planned relaunch is expected to bring back success. Photo: © Kittiphan / Adobe Stock

The diversification of stationary trade with ever new specialist shops, shopping centres and supermarket giants as well as the online trade rising in the new millennium made life difficult for Karstadt and Kaufhof. A merger of the two former competitors became inevitable so that they could continue to exist at all. Merging as a life-support measure can thus also be a play on corporate mergers in some cases.

In the case of Karstadt and Kaufhof, the merger in 2018 was the temporary end of a long nail-biter for the department stores. After Karstadt had already caused the biggest bankruptcy in German economic history in 2009 and was streamlined in a lengthy insolvency process, Austrian investor René Benko took over in 2014 with his Signa holding. In 2015, rival Kaufhof was sold by German retail group Metro to Canadian retail giant HBC. Unprofitable both sides remained.

Finally, in 2018, the unification, dubbed a “merger of equals” by the public, was decided. However, it did not take place on an equal footing, as the majority of shares in the new company, Galeria Karstadt Kaufhof, went to Karstadt owner Benko’s Signa holding company with 50.01 percent. HBC received 49.99 per cent. In addition, the former Karstadt boss Stephan Fanderl became head of the department stores’ cooperation.

However, it continued to make losses, which was further fuelled by the Corona crisis from 2020 onwards. This was followed by a reorganisation within a protective shield insolvency procedure, which ended in autumn 2020. However, the second lockdown immediately led to new problems, and Galeria Karstadt Kaufhof is currently urgently waiting for state aid to continue as a going concern. In order to free the company from the crisis, a new strategic start is planned.

Through this permanent struggle for survival, two former competitors are bound together in cordial dislike. As before, the different cultures of the companies and a slight feeling of superiority on the part of the dominant Karstadt side are not likely to make the already difficult economic situation any easier. It is simply often the human factor that makes mergers more problematic than they should be from a purely economic point of view.


Daniel Mahnken



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