One of the main reasons for companies to merge is synergy, which is the idea that the performance and value of two businesses combined is better than the separate entities. When a company in a place like Texas is considering a merger, the type that it enters depends on the relationship between the companies, the economic function of each business and the purpose of the transaction. Taking these factors into consideration, there are five types of mergers that most frequently occur.
A horizontal merger is the merging of two businesses in the same industry. Such mergers often occur between competitors that offer the same services or goods. Merging can offer the companies greater gains and synergies. A vertical merger also occurs between two companies in an industry, but the businesses offer different services or goods that contribute to the same finished product. Merging allows them to increase synergies by operating more efficiently.
In a conglomerate merger, the two companies run totally different operations. Pure conglomerate mergers consist of companies that have nothing in common. Mixed conglomerate mergers consist of companies that want to extend their product or market reach.
With a product extension merger, two businesses that offer related products and operate in the same market combine to put their products together and gain access to a larger consumer base, which increases profits. A market extension merger occurs when two businesses that offer similar products but operate in different markets combine to gain access to a larger market that increases their clientele.
When a business is considering a merger, there are more than just greater gains and synergies for the management to think about. It might be helpful for these businesses to hire legal teams to ensure that all of their bases are covered to avoid future problems.
Source: MBDA, "5 Types of Company Mergers", November 05, 2014