27 Apr 2021 3:07 PM

April 2021 saw the provisional approval of the £31bn mega-merger of Virgin Media and O2 to create a challenger to the dominance of BT in the UK TV and telecoms market.

But what exactly are the benefits of company mergers?

In the case of Virgin Media and O2, the deal brings together two of the powerhouses in the UK television, broadband and mobile sectors into one amalgamated group. The combination, structured as a 50-50 joint venture, will be able to disrupt the control of BT on the market, which in turn is likely to lead to consumer savings as well as increased service speeds, as both groups vie for the all-important share of this lucrative market.

In this scenario the two entities would have been individually investing heavily in the latest infrastructure and technology such as the rollout of 5G and ultrafast fibre broadband, so a tie-up is seen as a logical step for the consolidated group to benefit from economies of scale. The new entity has already pledged to invest £10bn over the next five years.

Generally, the main advantages of company mergers include:

  • Increased market share – a merger can mean companies quickly increase their market share, customer base or geographic reach in a way that organic growth may not allow
  • Specialisms – This may involve buying a complimentary business or industry expertise to steal a march on competitors
  • Synergy – cost savings by combining duplicated central functions
  • Economies of scale – increased buying power of a larger, more influential entity

Disadvantages

  • Loss of experienced executives – mergers likely mean that senior management at both entities are made redundant
  • Internal clash of cultures – Different perspectives on risk, group policy and overall culture could result in internal staff disputes
  • Potential reduction in customer satisfaction – a larger entity sometimes loses touch with the end customer

Our experienced team of corporate finance specialists have successfully helped businesses through the process of merging and understand the challenges involved. 

If you would like to discuss the options, and the next steps, please contact us.