If you are considering a merger for your business, you may wonder what the different merger options are. There are, in general, 5 different types of mergers including a conglomerate merger; a horizontal merger; a market extension merger; a vertical merger; and a product extension merger. The type of merger is determined by the economic function of the merger, the purpose of the transaction and the relationship between the two companies that are merging.
In a conglomerate merger, the two companies that are merging are involved in completely unrelated business activities. Conglomerate mergers can be pure, when the companies merging have nothing in common, or mixed, when the companies merging are looking for product or market extensions. A horizontal merger generally describes a merger when two companies in the same industry are merging. Horizontal mergers are business consolidation mergers.
Somewhat similarly, a market extension merger generally occurs between two companies that deal in the same products but the two companies deal in different markets. Market extension mergers provide access to a larger market. Alternately, a product extension merger occurs between businesses that deal in related products and operate in the same market. The merging companies are able to group their products together and reach a larger group of consumers. Finally, a vertical merger generally takes place between two companies that produce different goods or services for the same finished product. A vertical merger occurs when the two companies operate at different points of the supply chain of the same industry, allowing for greater efficiency following the merger.
There are a variety of methods to expand, grow and strengthen your business and its potential for success, including a business merger. With each growth opportunity, there are also important legal implications it is important to understand and address for the long-term benefit of your growing company.
Source: Minority Business Development Agency, “5 Types of Company Mergers,” Accessed July 9, 2016