Four Distinct Types of Mergers www.avendus.com/india
An agreement that brings together two existing entities into one new entity is a merger, and is called a merger. M&As are brought into effect to achieve an overall expansion of a company, and ultimately encourage growth.The reasons behind entering an M&A dictate the kind of merger that is opted for.
Introduction
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The process behind mergers and acquisitions (M&A) can be quite stressful and exhausting. Even when considering an m&a consulting firm, with the various forms of structured credit they offer,it is first necessary to have a grasp over the basics of M&As, the reasons behind companies opting for this, and what kind of options exist in terms of kinds of M&As.
The Merger
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Horizontal
When companies selling similar products or services join hands, it is called a horizontal merger.This sort of merger is typically found between direct competitors.
A good way to understand this is to consider the way in which startups are acquired by bigger companies. This usually happens when the bigger entity wants to utilize the technology developed by the startup, or mitigate the threat of the startup capturing parts of the market that the larger company has been trying to map.
Vertical mergers look to capture the entire supply line of the product, instead of expansion along the market cap, and merging with their direct competitors. Here, a company merges with another that is better positioned in a particular step of the production process, which goes to say that they coexist in the same supply chain.
The Vertical Merger
For instance, when an automobile company merges with a supplier that specializes in certain parts, this allows the parent company to utilize better pricing and overall exercise better control over the entire process. Parallely, the subsidiary gets a steady source of business.
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While concentric mergers are similar to horizontal mergers in that they both aim for a larger market cap, there is a fundamental difference between the two. This is the fact that concentric mergers involve indirect competitors. This means that in a concentric merger, one company merges with another company that sells different products, but to the same customers. Hence, companies engaged in this sort of a merger usually complement each other instead of competing with each other. Merger
The Concentric
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The
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Finally, the conglomerate merger, distinct from all the other kinds of mergers, is when two companies, that do not compete at all, come together. This typically occurs with large companies operating in several different fields of expertise. A merger of this sort usually benefits both parties in that it adds to the market shares of both companies, and allows for cross-selling. While it is tricky for companies of such stature to successfully pull off a merger, companies that do tap into the synergy and productivity of their combined processes usually go on to become hugely successful. Conglomerate Merger
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