Many business owners are always looking for new ways to expand their reach and grow – and mergers can offer a lot of benefits to everybody involved.
However, not all mergers are created equal. Understanding more about the different forms a merger can take can help you better assess their benefits/drawbacks and make informed decisions accordingly.
A horizontal merger is the joining of two companies within the same industry – and the same part of the production process or supply chain. The goal is usually to increase their market share while simultaneously reducing competition. For example, if two competing automobile manufacturers merge, it’s a horizontal merger.
A vertical merger also involves two companies in the same industry – but at different stages of the production process or supply chain. This type of merger can help streamline operations, reduce costs, improve products and increase the efficiency of the overall supply chain. For instance, if a car manufacturer acquires a company that produces tires, it’s a vertical merger.
Market extension merger
This type of merger involves companies that operate in the same industry producing essentially the same product, but in different geographic markets. The purpose is to expand the market reach and customer base. For example, if a fast-food chain from one region acquires a similar chain from a different region, it’s a market extension merger.
Conglomerate mergers involve companies from two different industries or sectors joining forces so that they can diversify their operations, mitigate the risks of an uncertain market, or cross-sell their products. For example, a telecommunications company might merge with a media and entertainment company with each branch helping support the other.
Product extension merger
In a product extension merger, companies in the same industry with complementary (not competitive) product lines merge to diversify their offerings and cross-sell products. For instance, if a company that produces running shoes acquires a company that makes athletic clothing, it’s a product extension merger.
Mergers are often driven by the desire to achieve synergies, expand market presence or diversify business operations – but a lot of due diligence is required before these visions can be realized. Seeking legal guidance can help you protect your company’s interests regardless of what decisions you end up making about your circumstances.