Advance financial management

3 Types of Company Mergers

This article throw light upon the three important types for mergers. The types are: 1. Horizontal Merger 2. Vertical Merger 3. Conglomerate Merger.

1. Horizontal Merger

When two or more concerns dealing in same product or service join together , it is known as a horizontal merger . The idea behind this type of merger is to avoid competition between the units . for example , two manufacturers of same type of cloth , two book sellers , two transport companies operating on the same route – the merger in all these cases will be horizontal merger . Besides avoiding competition , there are economies of scale , marketing economies , elimination of duplication of facilities , etc.

2. Vertical Merger

A vertical merger represents a merger of firms engaged at different stages of production or distribution of the same product or service . In this case two or more companies dealing in the same product but at different stages may join to carry out the whole process itself . A petroleum producing company may set up its own petrol pumps for its selling . A railway company may join with coal mining company for carrying coal to different industrial centres . Similarly , a textile unit may merge with a transport company for carrying its products to different places . All these are the examples of vertical merger . The idea behind this type of merger is to take up two different stages of work to ensure speedy production or quick service .

3. Conglomerate Merger

When two concerns dealing in totally different activities join hands it will be a case of conglomerate merger . The merging concerns are neither horizontally nor vertically related to each other . For example , a manufacturing company may merge with an insurance company , a textile company may merge with a vegetable oil mill . There may be some common features in merging companies , such as distribution channels , technology , etc. This type of merger is undertaken to diversify the activities .

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Sarvesh Arora

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