At this point, and it might be too early to know, especially with no elections on the horizon at this time, we don't know if they are joining  and merging into one party or if this will be two separate parties running a joint list (like was Degel and Aguda do, like what Hatzionut Hadatit and Otzma Yehudit did in the last election, etc).

Personally I think it is a mistake, a bad move.

Not the joining together to run on a single list (whether as a new unified party or as a joint list). That is fine and correct and should have been done before, even though there are significant differences between the two parties.

The mistake, the bad move, is the name. The Democrats.

Israel should stay bipartisan. A name like this aligns them too closely with the Democrat party in the USA, and that was obviously their intention. 

Even if their ideals are somewhat aligned, and even if they are somewhat loosely associated with each other, they should have chosen a different name. This ties them too closely to American politics and to one American side. Israeli parties should be independent, not branches of foreign political parties and not tied directly to them and not even thought as the local chapter even if there is no real association. The Israeli political scene should be thought of as independent and bi-partisan.