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July 31, 2023

Too often, M&A involves a larger entity acquiring a smaller business. Only a few believe that a merger of equal can be possible, especially considering the power struggle between the two companies. However, a merger of equals can be a powerful strategy that could unlock tremendous value and opportunities for growth if done right. This article explores the path to successful equal mergers featuring Scott Crofton, Partner at Sullivan & Cromwell LLP.

“Mergers of Equals must be mutual to be successful. What you’re giving is what you’re getting, and you’re basically both the buyer and the seller in the deal.” – Scott Crofton

According to Scott, most of the biggest companies in the world today have been created by the merger of equals in the past. It is a very transformative deal that gives the opportunity to merge two entities that could never buy each other into one powerful competitor. However, both companies must be completely aligned for a merger to work. No one should take control of the newly-formed company, and is typically structured as a stock-for-stock deal. 

The management team

It all starts with the CEOs and Boards of Directors of both companies. Before further talks progress, they must agree and determine who will run the combined entity. In some deals, they also decide who will run the other departments early. It’s either they pick one from the two companies or have people interview for the same roles. Regardless, it has to be mutually agreed upon. 

Letter of intent

The LOI can be informal since both parties have already agreed to the deal at this point. Usually, a term sheet is used outlining the key social issues such as the headquarters location, the name of the combined company, how to allocate subcommittee positions, and other key aspects.


Diligence is a lot simpler in a merger of equals. Since the deal is much bigger than any other deal they’ve done, the materiality threshold of red flags is much higher than it would be in any other circumstance. In short, the diligence is very targeted and focused on big-picture issues.

Also, parties understand that whatever they request from the other, they will have to provide the same in return. This helps both entities focus on requesting information that truly matters and is relatively easy to produce, making the diligence process more orderly.


Because no cash is involved in the process, both entities must develop a compelling story of why the merger is for the greater good. Upon the announcement, the combined entity must convince all stakeholders that the transaction will create additional value and is in the best interest of everyone. 


Like any other deal, culture clash is one of the biggest risks during integration. If the cultures are so different from one another, employees might leave and disrupt the business. The leaders must ensure that the two companies can create a combined common culture that works for everyone.

Furthermore, announcing a merger of equals puts the companies involved at risk of getting hostile bidders. These are potential acquirers that are offering a significant cash premium to acquire the target company. Because of fiduciary duties, it can stop the merger altogether. 

This situation can pressure the management and board to justify the merger of equals and convince stockholders that the long-term value created by the merger is greater than the immediate premium offered by an acquirer.

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