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Types of Acquisition

Updated on May 24, 2024
Article byWallstreetmojo Team
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

Types of Acquisition Strategy

Types of acquisition strategy comprise horizontal, vertical, congeneric, conglomerate acquisitions. The acquisition is a part of corporate expansion strategy, and its categorization is based on the product line, industry, and business activities.

The acquisition helps to see the new market, customer base and to obtain the synergy gains. In addition, it will give an edge to a firm and bring maturity in the firm’s operations. Thus, acquisitions are considered the starting step towards achieving market leadership.

Key Takeaways

  • The types of acquisition strategy include horizontal, vertical, congeneric, and conglomerate acquisitions. 
  • The acquisition is a corporate expansion strategy element. Its categorization depends on the product line, industry, and business activities.
  • It helps to see the new market and customer base and gain synergy. Moreover, it also provides an edge to a firm and brings maturity to its business workings. Therefore, acquisitions are the initial step toward attaining market leadership.
  • Horizontal, vertical, congeneric, and conglomerate acquisitions are the types of acquisitions. 

Let us discuss each of the four types of acquisitions in detail –

Types of Acquisition

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List of Top 4 Types of Acquisition

#1 – Horizontal Acquisition

The biggest factor to be factored in drafting any business formula in the market is competition. An entity thriving at the same production stage, capacity, and serving the same class of customers will be considered the competitor in the market. If the entity has to grow in the market, it will have to maximize its market share constantly. Either entity will have to serve better quality products or eliminate the competition by acquiring the competitor. It is termed a horizontal acquisition.

Example of Horizontal Acquisition

Company A and Company B produce cell phones. Now, if Company A acquires Company B, company A will be able to serve the customer base of Company B also under its brand name. It will help in penetrating the market and, as a result, will act as the market leader. Presently, such acquisitions are highly visible in the information technology sector. Tech giants keep acquiring technology startups and will leverage their customer base. It allows them to cover the uncovered area and make their presence feel across the globe.

#2 – Vertical Acquisition

To have all the activity related to any business gives synergy benefits to any entity. Either backward integration or forward integration can make a vertical acquisition. For example, a wholesaler with a monopoly in the trading acquiring a manufacturing unit producing the same commodity will be considered backward integration. It will help in obtaining the inventories at highly reasonable rates. On the other hand, if the same wholesaler acquires retail stores, it will be considered forwarding integration. It will give direct customer-facing, which will help earn the retail level profit. The above process is termed a vertical acquisition.

Example of Vertical Acquisition

Target Corp. is the best example of vertical acquisition. The company is one of the largest retail chain holders in the United States. It has its own manufacturing unit, distribution channels, wholesale and retail stores, which cover a large customer base and remove any intermediary.

#3 – Congeneric Acquisition

Modern society is highly lacking in time. Due to this only, shopping malls have thrived in the market. People prefer a one-stop-shop and try to optimize time for shopping by acquiring all the necessities from the same roof. It helps individuals satisfy their various needs from the same vendor, saving time and putting pressure on them to ensure the better quality of the products. Moreover, an entity will charge premiums from the customer to offer the various products together, which will help satisfy the customer’s single need. It helps the acquirer enjoy the different areas of the same industry, serving the same customer.

Example of Congeneric Acquisition

Citi Group is the global banking corporation. Its core business focuses on providing banking services to customers. The major crunch is large corporations whose presence is there across the globe. Such large corporations have executives frequently traveling throughout the world for business meetings. For such executives, there is a huge need to take travel insurance. Citi Group identified this requirement of travel insurance and acquired Travelers Insurance Co. With the help of this, Citi Group is now able to serve large corporate clients, even travel insurance in addition to banking services.

#4 – Conglomerate Acquisition Type

Conglomerate Acquisition occurs in between entities with a completely different product line, different geographies, and different customer base and has a completely different business model. It means such firms will have nothing in common with them, and they plan to undertake such acquisitions to diversify their risk and try to cover the new market. Such types of acquisition will help provide the existing products to the customers of the newly acquired company and vice versa. Such a diversification strategy helps the firm diversify the business, synergy benefits, increase customer base, and achieve better economies of scale.

Example of Conglomerate Acquisition

The best example of a conglomerate is the merger between PayPal and eBay. Around 2002, PayPal was not able to maintain its market reputation. The e-commerce giant acquired PayPal just by paying around a billion dollars at that time. However, presently eBay has a market value of a hundred billion dollars. eBay had spanned off PayPal after its acquisition. As a result, PayPal has revolutionized the payment system and challenged the traditional payment method. These acquisitions are considered a benchmark step for bringing modern change in Silicon Valley.

Frequently Asked Questions (FAQs)

What are the two types of negotiated acquisitions?

The two types of negotiated acquisitions are sole source acquisitions and competitive acquisitions.

What types of language acquisition do you know?

Language acquisition creates the capacity to understand and use a language to communicate with others. First-language and second-language acquisition are the language acquisition humans may acquire the ability to recognize and understand language.

What are types of skill acquisition?

Functional, self-management, and special knowledge are the three types of skill acquisition. Functional skills come at birth and are cultivated by experience and learning.

What are types of data acquisition?

Analog and digital data acquisition systems are the two types of data acquisition.

This article has been a guide to Types of Acquisition. Here we discuss the top 4 types: Horizontal Acquisition, Vertical Acquisition, Congeneric Acquisition, Conglomerate Acquisition, and examples. You can learn more about financing from the following articles –

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