A merger is an agreement in which two businesses join together to become one legal entity. Mergers are a great way for two businesses with unique expertise and experience to come together and form a more profitable business. Done right, a business merger can be beneficial to all the parties involved.
There are several reasons why businesses may want to get into a merger. Sometimes, it can be out of necessity. Other times, it can be out of convenience. Regardless of the reasons, the overall goal of a merger is to help businesses take advantage of the available opportunities and realize greater success.
Here are the different types of mergers that businesses can consider:
This type of merger involves businesses that are in direct competition with each other. Businesses get into horizontal mergers to increase their market power, exploit merger synergies and utilize economies of scale to their advantage.
Vertical mergers involve businesses that operate along the same supply chain. Motivations behind vertical mergers may include higher quality control, enhanced information flow along the supply chains and optimized merger synergies.
Market-extension merger occurs between businesses that offer the same products or services but in different markets. The goal of a market-extension merger is that gain access to a larger market and greater customer base.
Finally, a conglomerate merger occurs between businesses that are completely unrelated. Conglomerate mergers can be pure or mixed. A pure conglomerate merger involves businesses that are completely unrelated both in their product lines as well as markets of operations. A mixed conglomerate merger, on the other hand, involves businesses that are looking to expand their product lines and/or their market shares.
Businesses of all sizes merge to strengthen their positions in the market, access new markets and increase their efficiency. There are different types of mergers that businesses can opt for depending on their goals.