Mergers are what happen when two companies combine for their mutual benefit. The reasons for mergers may be: to access new markets, technologies or economies of scale. Mergers are also called as the ‘merger of equals’ when the companies that are planning to merge are more or less of the same size and structure.
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The Merger could result in the assimilation of both the organizational structure as well as their operations. Mergers could also cause problems such as downsizing of the workforce and the difficulties in trying to integrate dissimilar corporate cultures.
Mergers are generally classified into four types: Horizontal Merger, Vertical Merger, Conglomerate Merger and Congeneric Merger.
Horizontal Merger happens when two businesses who were rivals and competitors in the market decide to join together and form a single and larger operational entity. The customers of both the businesses are served by this combined business. The businesses that participate in a horizontal merger are of the same industry and serve the same area in the geographical market. The benefits of horizontal merger are trifold: the competition becomes less, the local market can be secured and the business can also achieve economies of scale.
Vertical merger happens when two businesses combine to branch out their product line-ups. Vertical mergers can be of two types: backward integration and forward integration. Backward integration is said to occur when one firm is a supplier from whom the other acquires the materials. This is done with a view to capture the supply of materials and ensure that a sustained supply of the materials. Sometimes a business merges with a retailer or distributor to guarantee the demand and supply of its product to the customers. This is a forward vertical merger. The businesses that participate in a vertical merger are usually two companies that are succeeding links on the supply chain. The combined effect is produced by vertical merger when the production of one wing of the business is provided to the other.
Conglomerate mergers occur when the merging businesses are from disparate industries and from different geographical markets and there is no supplier-customer links between them. Conglomerate mergers can be pure conglomerate mergers that occur between two businesses that are totally dissimilar; market extension mergers where the two businesses manufacturing the same types of products but are located in diverse geographical markets combine as one; and product extension mergers that occur between businesses that have the same type of marketing networks but cater to different markets. There is no direct synergy in conglomerate merger because the aim is to diversify assets and portfolios.
Congeneric merger occurs when two businesses belonging to the same industry combine together. However these companies do not have an inter-relationship as a supplier of customer. Because of this, the merging companies are usually complementary to each other and are not competitors in their undertakings. Congeneric mergers benefit the new business as it bring in financial advantages as well as functional economies of scale.
Management and economics students must be aware of the importance of Mergers and the effects of this phenomenon on the global marketplace. UK assignment writing services on such subjects is available from our company. Just click on the link to get assignment help on any topic or subject from our assignment writing service.