Types of Merger and Acquisition

Horizontal Merger

A horizontal merger takes place when two companies offering similar, or compatible, products or services to the same market combine under single ownership. If the other company sells products similar to yours, your combined sales give you a greater share of the market. If the other company manufactures products complementary to your range, you can now offer a wider range of products to your customers. A merger with a company that offers different products to a different sector of the market enables you to diversify your activities and enter new markets.

Horizontal Merger Benefits

The main aim of a horizontal merger is to increase revenue by offering an additional range of products to your existing customers. You do not have to invest time or resources in developing your own new products. You may be able to sell to different geographical territories if the other company has distribution facilities or customers in areas you do not currently cover. Horizontal mergers can also help you reduce the threat of competition in your market. The new merged company may have greater resources and market share than your other competitors, enabling you to achieve economies of scale and exercise greater control over pricing.

Vertical Merger

The main aim of a vertical merger is not to increase revenue, but to improve efficiency or reduce costs. A vertical merger takes place when two companies that previously sold to or bought from each other combine under single ownership. The companies are generally at different stages of production. A manufacturer may decide to merge with a supplier of important components or raw materials, for example, or with a distributor or retailer that sells its products.

Vertical Merger Benefits

Vertical mergers can help you secure access to important supplies. They also help to reduce your overall costs by eliminating the costs of finding suppliers, negotiating deals and paying full market prices. Vertical mergers can improve your efficiency by synchronizing production and supply between the two companies and ensuring that supplies are available when you need them. This type of merger can also help you deal with competitors. By making it difficult for competitors to obtain important supplies, you can weaken existing competitors and increase barriers to the entry of new competitors.