---
title: "What Is Merger?"
term: "Merger"
description: "A merger combines two companies into one legal entity or parent structure—common exit path when a strategic or financial buyer acquires a startup via stock-for-stock or cash merger."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/merger
---

# What Is Merger?

> A merger combines two companies into one legal entity or parent structure—common exit path when a strategic or financial buyer acquires a startup via stock-for-stock or cash merger.

**Merger** is a legal transaction in which two companies combine, with one entity surviving or a new parent holding both, and shareholders receiving agreed consideration.

### How it works

In startup exits, acquirers often use a **merger sub** structure: buyer creates a subsidiary that merges with the target; target shareholders receive cash or acquirer stock; target becomes part of buyer's org.

Key steps:

- Board and stockholder approvals (preferred and common voting per charter)
- Merger agreement with price, [escrow](/glossary/escrow), reps, and [MAC](/glossary/material-adverse-change-mac) clauses
- Regulatory filings (HSR antitrust where applicable)
- Closing and integration

Consideration may be all-cash, all-stock, or mixed. [Liquidation preferences](/glossary/liquidation-preference) determine how proceeds flow among preferred and common.

Alternatives include asset purchases (buyer selects assets/liabilities) and stock purchases (buyer buys shares directly).

### Why it matters

- **Founders:** Employment agreements, option acceleration, and rollover equity are negotiated in the merger docs—not side letters after signing.
- **Investors:** Merger structure affects tax, liability assumption, and speed. Asset deals may leave liabilities behind; mergers typically transfer everything.

### Common mistake

Announcing "we've been acquired" at signing. Until closing conditions clear and funds wire, the merger can still fail.

### Related ideas

See also [change of control](/glossary/change-of-control), [material adverse change (MAC)](/glossary/material-adverse-change-mac), [escrow](/glossary/escrow), and [liquidity event](/glossary/liquidity-event).

## FAQ

### What is merger in simple terms?

Two companies legally combine—usually the buyer survives and your company merges into it. Shareholders swap their stock for cash or buyer stock according to the deal terms.

### Why does merger matter?

It is a primary liquidity path for investors and founders. Merger agreements set price, employee treatment, reps and warranties, and conditions that can delay or kill closing.


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Source: https://venturecapitaltracker.com/glossary/merger