TYPES 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.