Merger | 5 Types of Mergers

Meaning of Merger

          Merger is the process where two are more companies come together to form a new single entity. Usually two companies of same size come together and merge into order to reduce the competition and serve a larger market. The difference between merger and acquisition is that in acquisition another firm buys the equity shares of another company whereas in merger both companies come together and form a new entity and operate.

Types of Mergers

          There are different types of mergers

§  Horizontal Merger

§  Vertical Merger

§  Conglomerate Merger

§  Reverse Merger

§  Concentric Merger

Now let us understand types of merger,

§  Horizontal Merger:  

                    It is a merger between two or more companies which are in direct competition with each other as both are operating in same industry. The main objective of this type of merger is to obtain economies of scale in production by eliminating duplication of operations and facilities.  The motives behind this merger are reduction in competition, economies of scale, research and development, increased market share.

§  Vertical Merger:

                It is the merger between two companies that are in different stages of production and operation in supply chain management. In may take place in vertical forward integration or vertical backward integration. Vertical forward integration means that a firm acquiring its customer. Vertical backward integration means that a firm acquires its supplier.

§  Conglomerate Merger: 

           It is a merger where two companies operating in two different or unrelated industries come together in order to diversify the business activities and also to diversify the risk. This type of merger takes place in three types. They are

·   Product Extension Merger:

               Merger takes place in order to widen the product lines of firm and also to induce new products to the existing territory.

·  Geographic Market Extension Merger: 

           This merger involves two companies who are operating in two different geographically areas without overlapping geographic areas or region.

·    Pure Conglomerate Merger: 

              This is the type of merger where two firms in two unrelated business. The objective is neither product extension nor market extension. Such a merger is called Pure Conglomerate Merger.

§  Reverse Merger:

                 This is a merger where a private firm takeover the public firm with an objective of bypassing the lengthy and complex process of going public.

§  Concentric Merger: 

               It is also called congeric merger. This is a merger where two companies operating in same industry but offer different product and services. When such two companies come together and merge. Such a merger is called Concentric Merger. The objective behind the merger is to form the synergy by coming together.