Whether you are a business executive with a growing company or you are a legal professional interested in entering the sphere of business law, you should strive to learn more about the intricacies of business mergers and acquisitions. Laws and strategies surrounding mergers and acquisitions tend to be complex — for good reason, as the economy can experience massive shifts when large companies decide to merge. Thus, professionals and leaders would do well to pursue a mergers and acquisitions certificate from one of the world’s best business schools.
As a primer for the comprehensive and interdisciplinary understanding students will gain through mergers and acquisitions certificate courses, here are the five types of mergers that can take place between businesses and real-world examples of each:
Market Extension Merger
When two firms deal in the same products but operate in separate markets, they can combine in a market extension merger. The reason for a market extension merger is simple and straightforward: to access a larger market and sell products to a more sizable client base. Market extension mergers are relatively commonplace, as merging with an existing company tends to be easier than moving into a new market without support.
There are countless examples of real-world market extension mergers, but the one most frequently cited is that which took place between RBC Centura and Eagle Bancshares. Eagle Bancshares was a bank operating in Atlanta, Georgia. RBC Centura, a Canadian bank, merged with Eagle to gain control of one of the largest banking institutions in Atlanta and to launch its move into the U.S. market.
Product Extension Merger
A product extension merger is similar to a market extension merger in that firms are expanding their business — this time with new products. Firms operating in the same market with related product lines can merge to access a larger number of customers. Often, this merger will result in the bundling of products into packages to attract consumers. As with market extension mergers, product extension mergers are relatively common, to the extent that many fail to make the news.
A popular example of a product extension merger is that which took place between Broadcom, a manufacturer of Bluetooth hardware systems, and Mobilink Telecom Inc., a manufacturer of mobile handsets. By merging, the two companies can produce complementary wireless products that appeal to a broader audience.
Conglomerate
A conglomerate emerges when there is a merger between two firms involved in completely unrelated business activities. There are degrees of conglomeration for business leaders to pay attention to: Pure conglomerate mergers involve firms that have no products or markets in common, while mixed conglomerate mergers involve extensions to a company’s existing products or markets. Companies may choose to form a conglomerate for various reasons, such as increasing their market share or gaining cross-selling opportunities.
One of the best examples of a mixed conglomerate merger is that of Disney and American Broadcasting Company (ABC). Though Disney already owned a few cable networks, the acquisition of ABC provided Disney with extensive new content and distribution options.
Horizontal Merger
A horizontal merger occurs when two companies in the same industry with the same goods or services and the same level of competition decide to merge. Horizontal mergers are more common in industries with fewer firms, as the potential benefit of merging increases with the elimination of competition.
Disney also participated in a horizontal merger when it acquired Pixar Animation Studios in 2006. Both companies were engaged in the creation of animated films targeting children and families, but with the merger, Disney gained access to Pixar’s innovative vision and cutting-edge technology, which helped to expand its market share and boost its profits.
Vertical Merger
Many companies may contribute goods or services to complete a single finished product. When two or more of the companies within the same supply chain merge operations, a vertical merger takes place. Usually, vertical mergers occur because one or more firms involved will increase synergy and efficiency by operating as a single entity. Often, large corporations will acquire smaller companies in their supply chain to gain complete control over operations.
IKEA continues to engage in vertical mergers as it collects forestland around the world. IKEA relies heavily on access to inexpensive wood as a raw material, and after too many disruptions to its supply chain through companies in Russia, the company began acquiring forests of its own in Romania and across the Baltics. Today, IKEA continues to purchase forestland around the world, most recently in the United States, to participate in logging for materials used in its furniture products.
As seen throughout this article, every merger is different, just as no two businesses are exactly alike. Thus, business leaders should study the different types of mergers and the ways in which real-world companies complete them to prepare for growth opportunities in their own industries.
