How Do Horizontal Mergers Work?January 21, 2017
As the old adage goes, two heads are better than one. This is true not just in ordinary endeavors; it also rings true in the corporate world. This is exactly why mergers are commonly seen among companies, regardless of the industry that they belong to.
What are mergers?
In a word, merging refers to consolidating two different companies to form a brand-new company. Through mergers, companies can better make use of the available resources in the business world, increase their value in the market, or even overtake competitors.
What are the different types of mergers?
There are three types of mergers commonly known in the business world: horizontal mergers, vertical mergers, and conglomerate mergers.
A horizontal merger occurs when the companies that come together are from the same industry or offer the same product line. One effect of this kind of merger is the reduction of competition in the marketplace.
In contrast, a vertical merger occurs when two merging companies offer the same products, but operate at different stages of production. A common example for vertical mergers is the merging of one company that produces content, and another company that distributes the content. By merging, these two companies can be more efficient in their business processes.
Lastly, a conglomerate merger occurs when two companies choose to come together despite being completely unrelated in terms of product offerings and business endeavors.
Conglomerate mergers typically occur between companies who offer complimentary products or services. A company that creates furniture can merge with a company that provides upholstery services, or a company that offers furniture accessories like sheets and linen, curtains, and the like.
What is the process involved in a horizontal merger?
There is much complexity in the process of horizontal mergers. There are a lot of intricacies in paperwork, and elaborate taxation processes. Negotiation is also a critical process in a horizontal merger that can make or break its success. To be able to successfully execute a horizontal merger, it is highly advisable that a company first gets in touch with business brokers who are experts in the field.