Different types of M&A in the corporate world Show
What is a Merger?A merger refers to an agreement in which two companies join together to form one company. In other words, a merger is the combination of two companies into a single legal entity. In this article, we will look at different types of mergers that companies can undergo.  Types of MergersThere are five basic categories or types of mergers:
Learn about modeling different types of mergers in CFI’s M&A Financial Modeling Course. Horizontal MergersA horizontal merger is a merger between companies that directly compete with each other. Horizontal mergers are done to increase market power (market share), further utilize economies of scale, and exploit merger synergies. A famous example of a horizontal merger was that between HP (Hewlett-Packard) and Compaq in 2011. The successful merger between these two companies created a global technology leader valued at over US$87 billion. Vertical MergersA vertical merger is a merger between companies that operate along the same supply chain. A vertical merger is the combination of companies along the production and distribution process of a business. The rationale behind a vertical merger includes higher quality control, better flow of information along the supply chain, and merger synergies. A notable vertical merger happened between America Online and Time Warner in 2000. The merger was considered a vertical merger due to each company’s different operations in the supply chain – Time Warner supplied information through CNN and Time Magazine while AOL distributed information through the internet. Market-Extension MergersA market-extension merger is a merger between companies that sell the same products or services but that operate in different markets. The goal of a market-extension merger is to gain access to a larger market and thus a bigger client/customer base. For example, RBC Centura’s merger with Eagle Bancshares Inc. in 2002 was a market-extension merger that helped RBC with its growing operations in the North American market. Eagle Bancshares owned Tucker Federal Bank, one of the biggest banks in Atlanta, with over 250 workers and $1.1 billion in assets. Learn about modeling different types of mergers in CFI’s M&A Financial Modeling Course. Product-Extension MergersA product-extension merger is a merger between companies that sell related products or services and that operate in the same market. By employing a product-extension merger, the merged company is able to group their products together and gain access to more consumers. It is important to note that the products and services of both companies are not the same, but they are related. The key is that they utilize similar distribution channels and common, or related, production processions or supply chains. For example, the merger between Mobilink Telecom Inc. and Broadcom is a product-extension merger. The two companies both operate in the electronics industry and the resulting merger allowed the companies to combine technologies. The merger enabled the combination of Mobilink’s 2G and 2.5G technologies with Broadcom’s 802.11, Bluetooth, and DSP products. Therefore, the two companies are able to sell products that complement each other. Learn about modeling different types of mergers in CFI’s M&A Financial Modeling Course. Conglomerate MergersA conglomerate merger is a merger between companies that are totally unrelated. There are two types of a conglomerate merger: pure and mixed.
The biggest risk in a conglomerate merger is the immediate shift in business operations resulting from the merger, as the two companies operate in completely different markets and offer unrelated products/services. For example, the merger between Walt Disney Company and the American Broadcasting Company (ABC) was a conglomerate merger. Walt Disney Company is an entertainment company, while American Broadcasting company is a US commercial broadcast television network (media and news company). More ResourcesThank you for reading CFI’s guide to Types of Mergers. To learn more and expand your career, explore the additional relevant CFI resources below:
When a corporation or two business entities combine to form one business is called?A merger is an agreement that unites two existing companies into one new company. There are several types of mergers and also several reasons why companies complete mergers. Mergers and acquisitions (M&A) are commonly done to expand a company's reach, expand into new segments, or gain market share.
What is it called when two businesses join together?A company merger is when two companies combine to form a new company. Companies merge to expand their market share, diversify products, reduce risk and competition, and increase profits.
What is merger company?Mergers combine two separate businesses into a single new legal entity. True mergers are uncommon because it's rare for two equal companies to mutually benefit from combining resources and staff, including their CEOs. Unlike mergers, acquisitions do not result in the formation of a new company.
What do you mean by mergers?A merger is a corporate strategy to combine with another company and operate as a single legal entity. The companies agreeing to mergers are typically equal in terms of size and scale of operations.
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When a corporation or two business entities combine to form one business it is called a merger?
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