What Are The Three Types of Mergers?

The three main types of mergers are:

• Horizontal Megers
• Vertical Mergers
• Concentric Mergers

Each arises from different motives for merging companies, and each will have certain strategic and business advantages for the acquiring companies concerned – such as expanding a business.

In this guide, Wilson Browne Solicitors breaks down each of the three main types of mergers, what is involved in each, and when a merger type would be applied during a merger transaction.

What are Horizontal Mergers?

Horizontal mergers involve companies that offer the same products or services as each other, with the same type of customers. For example, when Boohoo acquired former Arcadia brands Dorothy Perkins, Burton and Wallis.

One company merging horizontally with another can reduce rivalry, helping the resulting merged company compete more effectively, increasing its market power. It can also offer opportunities for cost savings by eliminating redundancies.

Other motives for horizontal mergers are to create economies of scale and to explore synergies.

The underlying principle is to create value, where the combination of the two companies is worth more than either company on its own.

The merged companies can also share complementary skills and resources.

A real-world example of a horizontal merger is Disney’s acquisition of Pixar.

What are Vertical Mergers?

Vertical mergers involve two different companies merging who offer the same goods or services, but at different production stages.

For example, one company could deal in the raw materials involved in a process in which the other company produces finished goods.

This way, the vertical merger allows for a consolidation of the supply chain, minimising disruption.

Motives for vertical mergers include better quality control, more efficient distribution, reducing costs and improving the flow of communication.

By increasing synergies in this way, companies aim to improve operationally, financially and managerially.

An example of vertical integration is Ikea acquiring a Romanian forest company to ensure its own supply of wood for furniture production.

Concentric Mergers

Concentric mergers, also known as congeneric mergers, involve companies merging that serve the same customers within an industry, but aren’t offering them the same products or services.

These types of merger enable companies to expand their offerings, and benefit from areas of shared expertise.

An example of this kind of strategic rationale is Coke buying Vitaminwater, the sweetened water brand.

What are the other merger types?

There are other types of merger besides these main three.

One is the conglomerate merger. This is where two companies from unrelated industries, or from different geographic locations, come together to join forces.

When a conglomerate merger does take place it often allows the acquired company the ability to reach a wider market through expanding its customer base.

However ensuring the two companies come together in harmony can prove difficult, as two contrasting entities must function together and adjust their business cultures to effectively work alongside each other.

A pure conglomerate is where the companies involved have nothing in common, while a mixed conglomerate takes place between companies that have a common interest in expanding in a particular market.

Amazon’s purchase of Whole Foods represents a conglomerate merger.

Expert Legal Support for Company Mergers

M&A transactions can be complex, involving different types of mergers. For companies to gain the best possible outcome, they should seek expert legal advice.

For more information about our company and commercial law services – call Wilson Browne Solicitors on 0800 088 6004 or complete our contact form.

Learn more about Mergers & Acquisitions:

A guide to Mergers & Acquisitions

What Is The Difference Between a Merger and an Acquisition?

Why Firms Undertake Mergers & Acquisitions

Do Mergers & Acquisitions Create Value?

Are Mergers Good Or Bad For Employees?