CandleFocus Glossary Editor
Mergers and acquisitions (M&A) represent a key strategic tool used by companies to accelerate growth, consolidate market share, and gain a competitive advantage. The merger is a process whereby two companies are combined in order to form a new company with only one legal entity, the new entity having all the assets, liabilities, and equity of the two parent companies.
Mergers have been on the rise in recent years due to the increased propensity of companies to strategically invest in adjacent or complimentary businesses to ensure future sustainability and profitability. Smaller organisations and start-ups have also started to look at mergers as an opportunity to take their businesses to the next level and expand their reach in their respective industries.
There are five distinct types of merger and each has a distinct purpose:
1.Conglomerate mergers – where two unrelated companies from different industries come together. The intent here is usually to diversify the products and services offered.
2.Congeneric mergers – involve the combination of two companies engaged in the same line of business. They are usually driven by cost synergies, increased market share, and economies of scale.
3.Market extension mergers –Two companies present in the same market, but are producing different but related products and services, joins forces to benefit from economies of scale and go after a larger share of the market.
4.Horizontal mergers – involve two companies operating in the same market, producing the same product and/or service. The primary motivation behind such mergers is to improve the bargaining power and market share of the combined entity.
5.Vertical mergers – involve combining a company’s upstream supplier with its downstream buyer. This type of merger aims to increase brand presence and capitalize on supply chain synergies.
In addition to offering economic and strategic benefits, mergers can also bring about cost savings and improved efficiency, as well as creating opportunities to develop new products and services. Despite the advantages, mergers must be carefully considered to ensure that investors’ interests are fully respected and the combined entity is able to successfully realise a strategic vision. Furthermore, potential risks associated with mergers should be identified and addressed in order to make informed decisions.
Mergers have been on the rise in recent years due to the increased propensity of companies to strategically invest in adjacent or complimentary businesses to ensure future sustainability and profitability. Smaller organisations and start-ups have also started to look at mergers as an opportunity to take their businesses to the next level and expand their reach in their respective industries.
There are five distinct types of merger and each has a distinct purpose:
1.Conglomerate mergers – where two unrelated companies from different industries come together. The intent here is usually to diversify the products and services offered.
2.Congeneric mergers – involve the combination of two companies engaged in the same line of business. They are usually driven by cost synergies, increased market share, and economies of scale.
3.Market extension mergers –Two companies present in the same market, but are producing different but related products and services, joins forces to benefit from economies of scale and go after a larger share of the market.
4.Horizontal mergers – involve two companies operating in the same market, producing the same product and/or service. The primary motivation behind such mergers is to improve the bargaining power and market share of the combined entity.
5.Vertical mergers – involve combining a company’s upstream supplier with its downstream buyer. This type of merger aims to increase brand presence and capitalize on supply chain synergies.
In addition to offering economic and strategic benefits, mergers can also bring about cost savings and improved efficiency, as well as creating opportunities to develop new products and services. Despite the advantages, mergers must be carefully considered to ensure that investors’ interests are fully respected and the combined entity is able to successfully realise a strategic vision. Furthermore, potential risks associated with mergers should be identified and addressed in order to make informed decisions.