I like the idea about merc battles, but only as a selection.
Perhaps like you get the option to select a faction, or you get to select the merc option. You could potentially get a very powerful army or a very weak one, that should not be forced onto a player. Can you imagine all the whining people would went if they lost with an army they did not like??? We would have 234674587 posts about how unfair the system is and how much is about luck.

But the idea is great.
Do I go for the army I know, or do I chance it and try for the mercs?