Top 5 Major Types of Business Mergers
A merger implies to an agreement that unites two existing companies into one new company. It is the voluntary fusion of two companies on broadly equal terms into a brand new legal entity. The companies that agree to merge are generally equal in terms of scale of operations, size and customer base. Unlike mergers, acquisitions involve one company actively purchasing another.
Earlier, Anand Jayapalan had spoken about how mergers and acquisitions (M&A) commonly take place for the purpose of expanding the reach of a company, get into new business segments or gain greater market share. Very often, during a merger, businesses tend to have a no-shop clause to prevent purchases or mergers by additional companies.
Mergers can be of many types, including
Congeneric/product extension merger: Such mergers take place between two or more companies that operate in the same market or sector with overlapping factors. These factors can involve marketing, production processes, technology, as well as research and development (R&D). Product extension mergers are ideally achieved when a new product line from one firm is added to an existing product line of another business.
Conglomerate merger: This is a merger between two or more businesses that are engaged in unrelated business activities. Such companies might operate in varied industries or distinguished geographical regions. Pure conglomerate generally involves two companies that do not have anything in common. On the other hand, in a mixed conglomerate, the merger takes place between companies that might be operating in unrelated business activities, but are actually trying to gain product or market extensions through the merger.
Market extension merger: Businesses operating in varied markets, but selling the same products, may merge in order to access a larger market and larger customer base.
Horizontal merger: A horizontal merger takes place between companies that operate in the same industry. Such mergers are ideally a part of consolidation between two or more competitors offering the same products or services. Mergers of this type are petty common in industries with fewer companies. The goal of such companies typically is to develop a larger business with a greater market share and enjoy economies of scale.
Vertical merger: If two businesses that produce parts or services for a specific product go for a merger, their union is widely referred to as a vertical merger. A vertical merger takes place when two businesses operating at varied levels within the supply chain of the same industry combine their operations. Vertical mergers ideally take place to improve synergies achieved through the cost reduction, which results from merging with one or more supply companies
Previously, Anand Jayapalan had spoken about how combining forces through mergers, businesses can harness complementary strengths, no matter whether it is in terms of market presence, technological capabilities, or diversified product offerings. Mergers provide opportunities to streamline operations, optimize resources, and achieve economies of scale, ultimately bolstering efficiency and profitability. Additionally, these strategic combinations can facilitate access to new markets and customer segments, fostering a broader and more diverse customer base.
