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here are four types of mergers: horizontal, vertical, conglomerate, and triangular mergers. The type is generally determined by the industry that two companies operate in or have similar business models in.
What is a Merger?
Mergers are a way for companies to combine to expand their offerings and increase profits. There are four types of mergers, each with its advantages and disadvantages: (A) horizontal merger, (B) vertical merger, (C) conglomerate merger; and (D) strategic acquisition.
What is an Acquisition?
An acquisition is a way for companies to acquire other businesses to expand their offerings and increase profits. An acquisition is a process of buying a company outright and can be as simple or complex as the acquiring firm has chosen.
What are the Advantages of Mergers?
A merger can help eliminate competition, which is good if you want to control your market share or monopolize it. A joint venture will also allow two seemingly unrelated firms to offer more comprehensive services that each company couldn’t provide on its own. Lastly, mergers can boost the productivity of an organization by allowing resources (both human and capital) to be used at a higher rate than they would otherwise be able to.
What are the Disadvantages of Mergers?
Merging might have unintended consequences like job losses because both organizations need less staff after combining them
What are the Types of Mergers?
The Horizontal Merger
A horizontal merger is when two companies in different industries merge to create an industry powerhouse with capabilities in both sectors. It’s common for one of the merged enterprises to buy out the other company, but it doesn’t always have to happen that way. Some synergies may not exist between organizations at all levels, so there would need to be some reorganization within the new entity if this happens.
The Vertical Merger
Vertical mergers occur when two businesses from similar types of industries – such as manufacturing and retailing – combine their operations into one larger enterprise. Vertical mergers are typically more controversial because they often reduce competition within a sector and can lead to higher prices.
The Concentric Merger
A concentric merger is a type of merger that takes two businesses in different industries – one that makes products and another that sells them, for example-and merges their operations. It is considered a “horizontal merger” because it increases the number of competitors in those two markets.
The Fused Group Merger
A fused group merger combines multiple companies with little to no overlap into one larger company. Such companies are often from unrelated lines of business or have been operating at an overall loss. They may also be family-owned enterprises within the same industry looking to combine resources and distribution channels so they can better compete with other multinational corporations without
The Conglomerate Merger
A conglomerate merger is when two unrelated companies merge their operations to achieve a goal, such as diversifying their risk. It involves two companies coming together to form one larger company. The process may take years to complete and could be seen as a type of investment or growth strategy for the company
The Leveraged Buyout Merger
A leveraged buyout merger takes place when a private equity firm borrows money to acquire all the shares of one publicly traded company. After acquiring control, they break up the target into smaller pieces so that it can be sold off more easily. The goal is typically to turn around underperforming assets to generate cash and make a profit
The Reverse Takeover Merger
A reverse takeover is when an established privately held company acquires majority control of a publicly-traded entity. A typical example would be the acquisition by Dell Computers in 2013, whereby they acquired 80% ownership of EMC Corporation for $67 billion. The intention behind this type of merger is usually to change the corporate structure and reduce taxes or gain access to sources that are not available through private equity investments (such as public markets). It can also serve as a defensive maneuver against hostile takeovers from competitors who target strategic acquisitions with low prices because it’s easier than going into competitive bidding wars at higher prices
What Are Common About These Types of Mergers?
Mergers have common elements that are significant for understanding what a merger is. One element is the fact that there’s usually something being acquired by one company to gain some type of advantage over another company. This can be either acquiring market share, customers, or making it easier to raise money and/or control costs through economies of scale.
The other common factor would be the simplification of corporate structures as a result of merging two companies into one more streamlined entity which helps reduce expenses related to management operations such as headquarter staffing and administrative functions required for running their businesses separately (for example, back-office). It also reduces ownership conflicts because investors hold stock in just one corporation instead of overseeing multiple entities themselves.
Final Thoughts on What Are the Types of Mergers?
The conclusion on what are the four types of mergers is that they all have a different goal. The most common one would be to acquire market share, customers or make it easier for companies to raise money and/or control costs by merging into one entity with economies of scale. Another reason could be simplifying corporate structures as a result of merging two corporations which helps reduce expenses related to management operations such as headquarter staffing and administrative functions required for running their businesses separately (for example back office). It also reduces ownership conflicts because investors hold stock in just one corporation instead of overseeing multiple entities themselves.
Do you want to learn more about the types of mergers? Check out these Best Books on Mergers and Acquisitions.
Meet Maurice, a staff editor at Bigger Investing. He’s an accomplished entrepreneur who owns multiple successful websites and a thriving merch shop. When he’s not busy with work, Maurice indulges in his passion for kayaking, climbing, and his family. As a savvy investor, Maurice loves putting his money to work and seeking out new opportunities. With his expertise and passion for finance, he’s dedicated to helping readers achieve their financial goals through Bigger Investing.
