The Main Types of Mergers and Acquisitions

Mergers and acquisitions are necessary for businesses to expand and grow exponentially and face tough competition in the industry. Business basics cover five types of mergers and acquisitions based on the product, market size, and other features. Understanding them helps choose the right type suitable for the business to make the process profitable for both the parties involved. 

Horizontal 

Companies operating in the same industry merge to share the market and profits through collaboration in the horizontal merger. The advantages are similar processes and operations, getting more funding and eliminating competition, and sharing profits. Such mergers are a bit hard to find as most companies treat each other as competitors do not come forward to work together efficiently. 

It takes great skill and exceptional leadership to make horizontal mergers and acquisitions successful through efficient planning and organizational restructuring. 6Sigma.us trains aspiring leaders in Six Sigma concepts through their master black belt class and other beginner-level classes. Six Sigma certified managers can see through complex mergers the perfect way, making the previously rival employees work together towards the common goal. 

Vertical 

Companies that belong to the same industry but produce different products join together to form profitable mergers. Such mergers are common in the automobile industry as various companies producing different spare parts partner together often. The mother company only benefits from such unions as they deal with the paperwork of one single company. 

Besides, merging two small companies helps in reducing the administration cost and providing goods at a lower price. The companies also use their resources to expand further, producing more spare parts or selling to another enormous company. The workforce, office, and other assets benefit both the companies who now work as one entity. 

Concentric 

Mergers and acquisitions from two different companies in adjacent industries are known as concentric. Collaboration between a seed-producing company and a urea fertilizer manufacturer is the best example of a concentric merger. Moving into the adjacent industries instead of stepping directly into new territories is the plus point of a concentric merger. 

It is common in the automobile and textile industry as a factory with good experience in Denim production can easily merge with a child dress manufacturing company. Motorcycle companies combine with huge automobile brands to stay in the market and counter huge losses. Concentric mergers are often safe and profitable as both companies have similar experience in the same field, handling a slightly different market. 

Conglomerate merger 

The conglomerate is divided into pure and mixed mergers and acquisitions. PurePure collaboration happens between companies from totally different fields that do not associate with each other. A cab company merging with an online music company to provide the customers better music and their preferred playlists during travel is an example of the pure conglomerate merger. 

Mixed mergers occur between two firms in related industries providing completely different services. A film production company and a broadcasting company buying the other one are examples of mixed conglomerate acquisition. Both are in the media but do entirely different jobs and can still merge to get better reach and earn more profits.

Market or product extension merger 

In market extension mergers, a major company buys a thriving small company in a city or area, where the mother company does not have any influence or reach. Both the companies are from the same industry and provide the same service. 

The mother company extends its market reach in a new territory by buying the small company instead of starting independently. A huge bank buying a small financial institution with several accounts and strong business bases is an excellent example of a market extension merger. h

Similarly, product extension mergers occur between companies manufacturing related products in the same industry. A speaker manufacturer buying hold of Bluetooth products producing company is an example of product acquisition and merger. 

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