Circular Merger

Sounds like the marriage of eight people standing around an altar.

It’s not. It’s just a special type of merger that brings together two companies that sell completely different products. Even though they make different things or offer different services, they likely operate parts of their company similarly in, say, marketing, research, or operations. Could be a coincidence, or maybe both CEOs went to the same business school.

Only two things matter. First, the combination makes them stronger economically. The deal might be between firms that are part of the same supply chain of an end product. Or it could be a deal between firms operating in the same sector looking to bolster market share. On this matter, it’s all about “synergy,” the worst word in the history of business.

Second, one of the other company ceases to exist and loses its identity. The other survives, takes over all of the assets, and assumes debts with the approval of both executive teams.

As you might imagine, a lot of these deals fall apart over the decision of which company gets to survive and what executives get to stay.