What Is a Mega Deal?

Business combinations of different sizes occur in the financial markets, and a mega deal is typically one in which two corporate giants decide to merge and create one larger entity. It is common for a merger of such proportions to garner the attention of regulatory agencies. This happens because government officials are often tasked with the responsibility of supporting competition and preventing any monopolistic practices. A mega deal can occur between two leading companies in the same industry or companies with what appear to be complimentary business lines might decide to join forces.

The size of a transaction often determines whether or not a a mega deal is at hand. Given that industry leaders are typically the participants in the largest of business combinations, the price tags on the deals tend to be high. Some companies have ample cash on hand to finance a mega deal from the assets on a balance sheet. In many cases, however, corporations turn to the markets for equity or debt financing in order to complete a transaction.

When the leading management teams of two businesses agree to combine, there are a series of hurdles that must still be crossed. The processes can be especially timely and cumbersome for the largest of deals. A pair of companies in the same industry may threaten to obtain so much market share that there is little room for competition. Subsequently, a mega deal is only likely to be completed with the support of regulators. The deliberation process amongst oversight officials could unfold over months or longer, and a merger could be blocked if the deal is deemed unfit.

It is common for a mega deal to occur between companies that operate in the same industry. This may be a result of the synergies of the competing business models. It might also serve as a tool for two companies to achieve cost savings or attain a stronger market position. In a mega deal, the companies involved are typically integrating operations in an often equal fashion. Nonetheless, there is typically only one chief executive at a company and there could be some executive management shuffling or displacements that occur.

Given the potential synergies, or redundancies, between the organizations in a mega deal, it is possible that a percentage of staff members could lose their jobs. The contributions of personnel are generally compared to determine if there is any overlap. In the event that the newly combined and larger entity can benefit from reducing the size of the staff, layoffs could ensue.