Mergers and Acquisitions Types

Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

What Are The Types Of Mergers And Acquisitions

Merger and acquisition are defined as the business transaction where the control and ownership rights of companies, business units, and business organizations are either acquired by a target company or merged with the target company.

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Mergers and Acquisitions Types (wallstreetmojo.com)

Four types of mergers and acquisitions exist Horizontal, Vertical, Concentric, and Conglomerate M&A. In each case, two companies come together to form a single entity. But, which type will be best will depend on the type and business of both entities, which will help in the newly formed entity’s growth and expansion.

Types Of Mergers And Acquisitions Explained

Different types of mergers and acquisitions play a very important role in today’s business operating environment, and we often see this happening. It has many benefits to both the target company and the target-seeking company and brings about synergetic growth.

Depending upon the vision and purpose, a company generally decides to either get merged or acquired chosen by the board of directors. Merger and acquisition though it sounds simple and easy, can take a long time to happen as it involves a lot of formalities and due procedures. It is interesting to learn what are the types of mergers and acquisitions in business.

Let us discuss the what are the types of mergers and acquisitions (M&A) in detail.

Mergers-and-Acquisitions-Types

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Mergers and Acquisitions Types (wallstreetmojo.com)

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Video on Mergers and Acquisitions Types

 

#1 – Horizontal M&A

#2 – Vertical Merger

#3 – Concentric M&A

  • Concentric mergers and acquisitions occur when two companies operate in the same industry and have similar customer bases but offer different types of products and services. The product can complement one, but in no manner will it be identical.
  • To cite an example, let us take a case where a company producing laptops merges with a company producing laptop bags. The laptop bag is an essential requirement of every laptop, but we see the products differently. Thus when this kind of merger or acquisition occurs, it is called a concentric merger.
  • This kind of merger and acquisition generally occurs to support customers in buying the product as a bundle offering instead of buying it in a different assembly. Also, it helps the company to diversify its offerings and thus generate higher returns.
  • Here the sales of one product will drive the sales of others as we see people who generally buy laptops will also be requiring a bag to carry it on the move. Thus, this leads to the generation of more profits for the company. The company turns out to be a one-stop destination for consumers where the company offers products linked in some way or the other.
  • Usually, these companies have similar production processes and business markets. This type of merger also has to offer an extended product line. Finally, this kind of merger helps the company reduce the risk of doing business by diversifying the product line.

#4 – Conglomerate M&A

  • This type of merger and acquisition occurs when both the target company and the target-seeking company are different in terms of industry, product offering, and production stage.
  • To cite an example, we can say a merger between a laptop-producing company and an electric vehicle-producing company. Thus, this kind of merger and acquisition occurs to completely explore new business areas by diversifying the product offerings, reducing the risk of doing business.

Thus, the above are the different types of mergers and acquisitions that can happen in the market.

Examples

Let us try to understand the types of mergers and acquisitions with examples.

Horizontal merger – An example of a horizontal merger is the merger of Facebook and Instagram that took place in 2012. Both of them belong to the same industry and similar types of business.

Vertical merger – An example of a vertical merger is the merger of Paypal and eBay in 2002 in which eBay got the different types of synergies in mergers and acquisitions in the form of an online payment facility and Paypal got a platform to expand further.

Concentric Merger – An example of a concentric merger is the merger of Heinz and Kraft, which took place in 2015, and is considered to be the largest merger of this kind in history.

Conglomerate Merger – An example of a conglomerate merger is the merger of Berkshire Hathaway and Precision Castparts merger in 2015.

In all the above cases each entity got different types of synergies in mergers and acquisitions.

Recommended Articles

This article has been a guide to what are the Types of Mergers & Acquisitions. We explain the horizontal, vertical, concentric & conglomerate types with examples. You can learn more about from the following articles –

Reader Interactions

Comments

  1. Zainab Mohamed says

    I really like the article

Leave a Reply

Your email address will not be published. Required fields are marked *