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Business mergers is a term used to describe the combining of two companies. The different types of mergers include: vertical mergers, horizontal mergers, conglomerate mergers, market extension mergers, and product extension mergers. This can be either a complete merger where all aspects of the two companies are combined or a partial merger where only certain parts or responsibilities are now one.
A vertical merger is one of the most common types of mergers. When a company merges with either a supplier or a customer to create an extension of the supply chain, it is known as a vertical merge or integration. An example of a vertical merger may be a steel company merging with a car manufacturer. The steel company was previously a supplier to the car manufacturer but after the merge would be part of the same company.
Horizontal mergers are types of mergers that involve companies in direct competition with one another. Often horizontal mergers are considered hostile, which means a larger company "takes over" a smaller one in more of an acquisition than a merger. An example of a horizontal merger in the traditional sense is the combination of car companies Chrysler and Daimler Benz. Both companies wanted the merger and once combined were called Daimler Chrysler. In the Daimler Chrysler case, there was synergy in market share, financial obligations, and operating costs that made the resulting company better than the two companies had been separately.
Conglomerate mergers are types of mergers that are in different market businesses. There is no relationship between the type of business one company is in and the type the other is in. The merger is typically part of a desire on the part of one company to grow its financial wealth. By merging with a completely unrelated, but often equally profitable company, the resulting conglomerate gains a revenue stream in many types of industries.
Market extension is similar to horizontal mergers in that the companies merging produce the same types of products. The difference, however, is the companies are not in direct competition with one another. Instead, they compete in different markets, such as one company being North America-based and selling only in the US and another being Asia-based and only selling in China. By merging, the new company will have greater access to sales as a whole and also be able to gain synergies through combined manufacturing or research and development.
Product extension mergers are types of mergers that combine companies that sell related products in the same market. An example of this would be a snow ski manufacturer merging with a ski apparel company. Both companies are selling to the snow skier market but, by combining their product, offering is extended.
The type of merger that is used to describe two companies coming together has large ramifications on the way that the final company will be organized and the way that the employees coming from either company will be treated. There also may be substantial cultural implications. For example, in a horizontal merger, there is almost always a company that is considered to be subordinate to the other. This is risky as the combined company may lose key employees due to the uncertainty of roles that usually happens when two companies combine and many companies offer employees retention bonuses to counteract this.
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