A BEECHMONT CREST ONLINE GUIDE
MERGERS & ACQUISITIONS
Merger Types: Horizontal, Vertical, Conglomerate
Horizontal Merger
A horizontal merger is a merger between two competitors. Suppose, for example, that tomorrow Pepsi were to buy Coca-Cola. This would be a horizontal merger.
Horizontal mergers may negatively affect the competitive situation in an industry. Therefore, they frequently run afoul of regulatory officials. A horizontal merger often increases the degree of concentration in an industry.
Vertical Merger
A vertical merger occurs when a supplier buys a reseller, or vice versa. The key point is that the two companies have a buyer-seller relationship.
Suppose that a jewelry retailer purchased a company that manufactures jewelry. This would be a vertical merger. Or, suppose that a pharmaceutical company acquired a drugstore chain. (This in fact happened when pharmaceutical giant Merck acquired Medico Container Services, Inc.)
Vertical mergers are more likely to be approved by regulatory authorities. Consumers can benefit from the increased efficiencies that result from supply chain integration--- often in the form of lower prices and/or better service.
Conglomerate Merger
A conglomerate merger is a union of two companies that a.) are not competitors, and b.) not part of the same supply chain. If Microsoft were to purchase a fast food chain, this would be a conglomerate merger. Software has no relationship to fast food; fast food has no connection to software (other than providing sustenance for programmers who work long hours.)