TUTORIALS

The Four Types of Mergers

A merger is an act of unifying of two companies on approximately equal rapports into one new permissible unit. Mergers are caused by an interchange of the pre-merger stock for the stock of the new company. Holders of every pre-merger company remain as titleholders, and the properties of the merging units are combined for the advantage of the new firm.

There are four types of merging that companies can do. All have their own unique advantages, process and factors that are considered when a company decides to do such union.

First is the horizontal merger. This is the simplest form of merging companies. Here, companies which have the same line of business decide to merge into one company. Example for this is when a plumbing company decides to merge with another company of the same business to make a much bigger plumbing company.

Second form of merger is the vertical merger. It is rather simple as well but here it is not the same line of business. In fact, the company merges with its supplier. To cite an example, a grocery firm decides to merge with a farm industry. The grocery will market the goods as the farm sector will produce the goods.

The third type is the congeneric merger. Congeneric merger happens when two firms of the same line of industry merge but neither of them is similar to the other’s business. This kind of merge is widely used for its benefits of getting the same sales distribution methods as such can reach the target customer in ease and in speed. An example is when a game development company decides to merge with a programming firm to make one gaming giant of a company.

Lastly, Conglomerate Merger is simply the unification of two companies that are unrelated at all. Imagine a cosmetics company merging with a restaurant chain. Both are unrelated in both business and industry but it can happen and such merge is called Conglomerate Merging. One benefit of this merge is risk reduction as the different cycles of sales and earnings impacts the general results of the company in a complex but effective way.