Types of Mergers and Acquisitions (M&A)

The pros and cons of 5 types of M&A deal

    In this section, we look at the most common types of mergers and acquisitions. We also explore some of the pros and cons of each, and help you establish which one might be best suited for executing your own business strategy. 

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    What are the most common types of mergers and acquisitions?

    • Horizontal merger
    • Vertical merger
    • Congeneric mergers
    • Market-extension or product-extension merger
    • Conglomeration​

    Horizontal merger

    A horizontal merger occurs when two companies operating in the same market (and selling similar products or services) come together to dominate market share. This type is attractive for merging companies aiming to build economies of scale and decrease market competition. However, there are potential downsides. A horizontal merger comes with increased regulatory scrutiny and stringency, and can lead to a loss of value if the post-merger integration is not fully realized. Regulatory due diligence should be executed with extra special care. 

    Vertical merger

    Vertical mergers involve two companies in the same industry who operate in different stages of production. This could involve a retailer who merges with a wholesaler, or a wholesaler merging with a manufacturer, for example. This type of merger is ideal for streamlining operations, boosting efficiencies, and cutting costs across the supply chain, but it can also reduce flexibility and result in new complexities for the business to manage.

    Congeneric merger (also ‘Concentric merger’)

    In a congeneric merger, the acquirer and target company have different products or services, but operate within the same market and sell to the same customers. They could be indirect competitors, although their products often complement each other. As these companies already share similar distribution channels, production or technology, this type of merger can allow the new business entity to expand its product lines and increase market share. As a downside, the fact that these two companies already operate within the same industry could limit further diversification.

    Market-extension and product-extension mergers

    A market extension merger describes two companies in the same industry who join forces with the aim of expanding market reach. Commonly, this type of transaction occurs across multiple geographic regions. A product extension merger occurs when a specific product is added to the product line of the acquirer from the acquired company.

    Conglomerate merger

    Unlike the other types of merger, a conglomerate merger occurs between two companies whose business activities and industries may be completely unrelated. In pure conglomerate mergers, the two firms may continue to operate separately within their own markets, whereas in a mixed one, they may look to expand product or market reach. While this type of merger can help the new entity increase market share and diversify its business, it can be especially challenging to integrate dissimilar companies, raising the risk of culture clashes and lost efficiency due to disrupted business operations.

    How can you tell which type of merger is right for you?

    The right type of merger for you will ultimately depend on your goals and your M&A strategy. 

    Are you looking to boost market share and decrease your competition? Then a horizontal merger is probably your best option. 

    Are you looking to streamline your operations and create new efficiencies by integrating with suppliers or wholesalers? A vertical merger will help you achieve this.

    Understanding which type of merger or acquisition will best support your strategy requires a careful look at the pros and cons of each, and the support of an expert advisor for guidance before the companies join together.

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