Merger and Acquisitions Services |
June 16TYPES OF MERGER
The phenomenon of merger can be mainly classified into three major
categories:
1. Horizontal Merger: When
companies in the same industry and the same stage combine, then that is called
a horizontal merger. It means that when the companies in direct competition
with each other in the same product lines and market merge; it becomes a
horizontal merger. The major reason for these kinds of mergers is creating
synergies, reducing costs, surviving the fierce competition, etc.
Example: When
there was a merger between Myntra and Jabong, it is a horizontal merger as they
are both into online retail space and sale of goods on their online portal.
2. Vertical Merger: The
vertical merger is a merger between companies and businesses having a definite
buyer-seller relationship. This vertical merger can be better understood by the
two terms:
a. Forward Integration
b. Backward Integration
Let us take a company is into the production of vehicles. So
vehicle manufacturing needs a lot of material supplies to manufacture motors.
Let’s say a company x supplies steel to this vehicle manufacturing company.
Now, this vehicle manufacturing entity if merges with the steel supplier, then
this merger will be called a backward vertical merger. It is a merger in the
same industry but in a different stage of value chain i.e. in this case it is
deeper into the value chain. Similarly, in forwarding integration, the
company goes more towards the supply chain and away from the value chain. So,
when this vehicle manufacturing has finished manufacturing a product, it
supplies to the retailers, showroom owners, etc. These retailers sometimes
offer customer service, maintenance service, and also financial services to
those buying the vehicles. So if the vehicle manufacturing entity merges with a
company is into capital financing then this is a forward integration i.e. it is
closer to the supply chain. Also, if an e-commerce company merges with a
logistics company for delivering goods, then it is a forward merger.
1. Conglomerate Merger: This
is a merger between two companies unrelated to each other and does not have any
common business linkage. The reason behind this can be attributed to the factor
of diversification. When a business finds itself saturated in its area, then it
diversifies the business.
Example: When Sun
Pharma, a pharmaceutical company acquired Suzlon Energy, a power company, then
that merger is called a conglomerate merger because these two businesses are
entirely different from each other.