Horizontal, Vertical and Circular Mergers
From a legal point of view, a merger is the legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner.
In management practice the distinction between a merger and an acquisition has become increasingly 'blurred' in several respects.
What types of mergers can be distinguished?
- Horizontal merger: involves firms performing the same activities/functions in the same supply chain. Both firms are in the same line of business. By buying the competitor, the acquiring company is reducing the competition in the marketplace.
- Vertical merger: involves firms performing different activities/functions in the same supply chain. The acquiring firm buys buyers or sellers of goods and services to the company.
- Circular merger: involves firms with different products but similar distribution channels. It is a transaction to combine 2 or more companies operating within the same market, but offering a different product mix. The aim is to increase the product and service offerings within the target market.