A merger is the union of one or more businesses into one entity. Generally speaking, a merger benefits all parties involved. There are five common types of mergers: market extension merger, product extension merger, vertical merger, horizontal merger, and conglomerate.
Market Extension Merger
The goal of a market extension merger is evident in its name: to extend each business’s market. A market extension merger is between two businesses that produce the same product or service in different markets. These mergers allow each business to grow a larger client base and market area.
Product Extension Merger
A product extension merger is when two businesses that produce related products in the same market merge into one business. These mergers often give the new business a competitive edge as they can usually combine production and marketing, saving funds. These mergers can result in loss of employment for staff members as production and marketing positions may be consolidated and reduced.
A vertical merger is when two businesses merge in a buyer-seller relationship, such as a consumer and a supplier. These mergers are usually between two businesses in the same market area. The goal of vertical mergers is to cut the cost of production and becoming more efficient by become one single business.
A horizontal merger is when two businesses with the same product and same market combine into one business. This merger is more common in industries with a smaller amount of competitors. When large companies participate in a horizontal merger, people often accuse them of attempting to create a monopoly in the market. For this reason, horizontal mergers are closely monitored and regulated by the federal government.
A conglomerate merger happens when two businesses that are in wholly unrelated industries and markets combine into one business. These mergers usually result in great success or great failure. If the two businesses are able to blend well with each other, the profits can be large. However, if the businesses are not able to successfully mesh, both businesses can loose everything.
When considering a merger with another company, it is best to consult an experienced business attorney. An experienced business attorney will be able to ensure the merger has your company’s best interest in mind and all paper work is filed correctly. A miss-handled merger could be detrimental to your business in the future.