In the last post, our blog began discussing more about the concept of company mergers, meaning those deals in which two existing businesses combine to form a new entity. Our purpose in this endeavor was to help both small and mid-sized business owners understand more about this seemingly esoteric topic.
We'll continue these efforts in today's post by briefly examining the five types of mergers, which, to recap, are all named according to the purpose of the combination, the economic function envisioned and the relationship between the existing entities.
A conglomerate merger is one in which two businesses with completely distinct activities combine.
It's generally understood that there are two forms of conglomerate mergers, including pure conglomerate mergers and mixed conglomerate mergers. In the former, the two businesses are completely dissimilar, while in the latter, there is some crossover, such that the firms could be said to be mulling product extensions and/or market extensions.
Market extension mergers and product extension mergers
A market extension merger is one in which two businesses with the same services or products, but which operate in different markets, combine.
A product extension merger is one in which two businesses with the same services or products, and which operate in the same market, combine.
Horizontal mergers and vertical mergers
A horizontal merger is one in which two businesses occupying the same space, frequently in direct competition in terms of markets and services/products, combine.
A vertical merger is one in which two businesses that provide differing goods or services for use in a particular finished product (i.e., operating at different places in the supply chain) combine.
Here's hoping the foregoing discussion has helped shed some light on an admittedly complex topic.
If you are a small to mid-sized business owner with questions about any complex banking or business law matter, including a proposed merger, consider speaking with a skilled legal professional.