Combining of two companies that produce the same product or similar products
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In this section, we look at the most common types of mergers and acquisitions. We also explore some of the pros and cons of each, and help you establish which one might be best suited for executing your own business strategy. Show
Transform your M&A experience with Ansarada Deals™—start your free trial today!What are the most common types of mergers and acquisitions?
Horizontal mergerA horizontal merger occurs when two companies operating in the same market (and selling similar products or services) come together to dominate market share. This type is attractive for merging companies aiming to build economies of scale and decrease market competition. However, there are potential downsides. A horizontal merger comes with increased regulatory scrutiny and stringency, and can lead to a loss of value if the post-merger integration is not fully realized. Regulatory due diligence should be executed with extra special care. Vertical mergerVertical mergers involve two companies in the same industry who operate in different stages of production. This could involve a retailer who merges with a wholesaler, or a wholesaler merging with a manufacturer, for example. This type of merger is ideal for streamlining operations, boosting efficiencies, and cutting costs across the supply chain, but it can also reduce flexibility and result in new complexities for the business to manage. Congeneric merger (also ‘Concentric merger’)In a congeneric merger, the acquirer and target company have different products or services, but operate within the same market and sell to the same customers. They could be indirect competitors, although their products often complement each other. As these companies already share similar distribution channels, production or technology, this type of merger can allow the new business entity to expand its product lines and increase market share. As a downside, the fact that these two companies already operate within the same industry could limit further diversification. Market-extension and product-extension mergersA market extension merger describes two companies in the same industry who join forces with the aim of expanding market reach. Commonly, this type of transaction occurs across multiple geographic regions. A product extension merger occurs when a specific product is added to the product line of the acquirer from the acquired company. Conglomerate mergerUnlike the other types of merger, a conglomerate merger occurs between two companies whose business activities and industries may be completely unrelated. In pure conglomerate mergers, the two firms may continue to operate separately within their own markets, whereas in a mixed one, they may look to expand product or market reach. While this type of merger can help the new entity increase market share and diversify its business, it can be especially challenging to integrate dissimilar companies, raising the risk of culture clashes and lost efficiency due to disrupted business operations. How can you tell which type of merger is right for you?The right type of merger for you will ultimately depend on your goals and your M&A strategy. Are you looking to boost market share and decrease your competition? Then a horizontal merger is probably your best option. Are you looking to streamline your operations and create new efficiencies by integrating with suppliers or wholesalers? A vertical merger will help you achieve this. Understanding which type of merger or acquisition will best support your strategy requires a careful look at the pros and cons of each, and the support of an expert advisor for guidance before the companies join together. Preparing for an acquisition?Discover how much easier it can be with Ansarada Deals - try for free today. Try now for free Mergers and acquisitions (M&A) - one of the most well-known methods of expanding your company, either nationally or internationally. Put simply, it’s when one company combines with another. For more complexity, M&As is a term that describes the consolidation of either companies or assets. There’s a wide number of these methods, ranging from mergers to tender offers to management acquisitions. In this blog, you’ll discover five of the most valuable M&A types that could one day expand your business.
1. Vertical MergerVertical mergers are simple and common. It’s done to combine two companies that provide similar or common goods or services, in an effort to bring together different supply chain functions that either organization might operate with. The hope here is that the merger will create ‘synergies’. Essentially, this means that the two companies will run more efficiently as one with the bigger organization benefiting from the increase in assets and supply chain operations. In some cases, these will be two companies that aren’t actually competitors - but their coming together makes sense logistically. For example, a car manufacturer may merge with a parts supplier so that their common processes can be done with closer proximity and visibility. The car manufacturer gains better control over the price of parts and the parts supplier benefits from a consistent stream of business. At the end of the day, it’s about creating something that’s greater than the sum of its parts. 2. Horizontal MergerHorizontal mergers are a little different. Where a vertical merger operates between two companies that may not happen to be competitors, a horizontal merger will operate between two or more companies that are competitors. These organizations will work within the same space and usually offer the same goods or service. These are more common in industries that have fewer businesses offering the same product, as there’s an increased amount of competition. A successful merger or acquisition within this market has high potential gains. For example, imagine McDonald’s and Burger King were to combine. This would be a textbook example of a horizontal merger - two companies that operate within the same space, the merger of which would create an entity with a ‘supersized’ market share. Cornering more of the market and joining certain operations, like manufacturing, may work to decrease overall operating costs. For smaller businesses, it’s a fantastic way of opening up markets within other countries that may not have been accessed yet. 3. Conglomerate MergerConglomerate mergers are unlike the first two we’ve discussed. This is a merger or acquisition that takes place between organizations that have totally unrelated business activities. It might seem counterintuitive, but mergers like these are beneficial. A merger like this can increase market share, diversify a service, asset and stock portfolio and also offer the opportunity to cross-sell products. There are two divisions of the conglomerate merger:
A famous example of a successful conglomerate merger is when Disney acquired Pixar. Ultimately, mergers like this can be about portfolio diversification. When one product or sector is performing poorly, it’s hoped that the others can compensate for any losses. 4. Market Extension MergerImagine you’re an organization that operates in a specific market. Now, there’s another organization that offers the same product or service, but in a different market. You’re looking for a way into that market in an effort to increase your market share and client base. A market extension merger is the way to go about this. A great example comes from all the way back in 2002, when RBC Centura acquired Eagle Bancshares Inc. Now, RBC Centura (RBC Bank) is a Canadian-owned venture that was looking to grow its operations in North America. Acquiring Eagle Bancshares Inc was the best way to go about this, as it allowed them to expand into the metropolitan Atlanta region. At the time, this gave RBC Centura access to the skills and experience of an extra 283 employees, almost 90,000 accounts and up to $1.1 billion in assets. 5. Product Extension MergerProduct extension mergers are similar to market extension mergers. These involve two or more companies that both deal in similar or related products and operate in the same market. For example, also back in 2002, Broadcom acquired Mobilink Telecom Inc in order to combine the handset product designs of the latter with the wireless, Bluetooth products of the former. This is a classic example of a product extension merger, where the merging companies can group their products together, in order to share expertise, technology and designs, as well as gain access to a much bigger set of customers. In turn, this has the potential to lead to much higher profits. At the end of the day, mergers and acquisitions bring two or more companies together. It’s the reasons for that and the methods of M&A that can differ. Overall, an M&A offers a potentially lucrative, exciting and advantageous opportunity for expanding businesses - especially to those that are expanding overseas. Now, even though it’s advantageous, there are risks involved, like any expansion opportunity. These pitfalls can sometimes be subtle, so it’s worth reading up on the potential issues that your business might face if you’re considering an M&A. To gain this insight, check out our guide. Mergers and Acquisitions: The Common Pitfalls and How To Evade ThemM&A is a hot topic. For every success, you hear a horror story. There are a number of complexities that need to be properly navigated - especially when it comes to merging with or acquiring a business that resides overseas. In our guide, you’ll be able to discover the common pitfalls, the reason why lots of M&As fail, how to get started and why Global Professional Employer Organizations are critical partners in this type of expansion. To get started with your guide, simply click the button below. What is it called when you combine two companies?Mergers and acquisitions (M&A) is the legal process of consolidating two or more companies. This typically involves a number of components, such as corporate finances and the purchase of assets which allow for a smoother transaction.
Is the combining of two or more companies that produce the same product or similar products?A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions (M&A) are commonly done to expand a company's reach, expand into new segments, or gain market share.
What is the combining of two companies?Mergers combine two separate businesses into a single new legal entity. True mergers are uncommon because it's rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs. Unlike mergers, acquisitions do not result in the formation of a new company.
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