All About Mergers ;)
Despite the last introduction to the process M&A, there is still much more about M&A. Below will explain the different types of mergers.
💡A merger refers to an agreement in which two companies join together to form one company. On the other hand, it is the combination of two companies into one single legal entity.
1⃣Horizontal mergers: A horizontal merger is a merger between companies that have direct competition with each other. Horizontal mergers are done to increase market power (market share), further utilize economies of scale, and exploit merger synergies. An example is that between HP )Hewlett-Packard) and Compaq in 2011, creating a global technology leader valued at over $87 billion USD.
2⃣Vertical mergers: A vertical merger is a merger between companies that operate along the same supply chain. A vertical merger is the combination of companies along the production and distribution process of a business. The rationale behind a vertical merger includes higher quality control, better flow of information along the supply chain, and merger synergies. A notable vertical merger happened between American Online and Time Warner in 2000.
3⃣Market-extension mergers: A market-extension merger is a merger between companies that sell the same products or services but that operate in different markets. The goal of a market-extension merger is to gain access to a larger market and thus a bigger client/customer base. For example, RBC Centura’s merger with Eagle Bancshares Inc. in 2002 was a market-extension merger that helped RBC with its growing operations in the North American market.
4⃣Product-extension mergers: A product-extension merger is a merger between companies that sell related products or services and that operate in the same market. By employing a product-extension merger, the merged company is able to group their products together and gain access to more consumers. It is important to note that the products and services of both companies are not the same, but they are related. The key is that they utilize similar distribution channels and common, or related, production processions or supply chains. For example, the merger between Mobilink Telecom Inc. and Broadcom is a product-extension merger. The merger enabled the combination of Mobilink’s 2G and 2.5G technologies with Broadcom’s 802.11, Bluetooth, and DSP products. Therefore, the two companies are able to sell products that complement each other.
5⃣Conglomerate mergers: A conglomerate merger is a merger between companies that are totally unrelated. There are two types of a conglomerate merger: pure and mixed. A pure conglomerate merger involves companies that are totally unrelated and that operate in distinct markets. A mixed conglomerate merger involves companies that are looking to expand product lines or target markets. The biggest risk in a conglomerate merger is the immediate shift in business operations resulting from the merger, as the two companies operate in completely different markets and offer unrelated products/services. For example, the merger between Walt Disney Company and the American Broadcasting Company (ABC) was a conglomerate merger. Walt Disney Company is an entertainment company, while American Broadcasting company is a US commercial broadcast television network (media and news company).
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