When two Michigan companies join together, their merger may be classified as one of five different. Two common types of mergers are the horizontal and vertical mergers. A horizontal merger occurs when two companies in the same industry merge to gain market share and increase their profits. Vertical mergers occur when two companies in a supply chain for a single good merge. For example, a car dealership may buy a part supply company, which might lead to production that is more efficient.
In some cases, mergers are conducted to gain market share or acquire new products to sell. A market extension merger occurs when a company buys a competitor in the same field but in a different location to gain access to customers in a potential growth market. Product extension mergers involve a company merging with another company to gain access to additional products, which typically results in higher profits and market share.
The final type of merger involves two companies that are not in the same industry, forming a conglomerate. For example, if a sporting goods store bought a financial services firm, the two companies would become a conglomerate. In some cases, a conglomerate will be a mixed conglomerate, which may be similar to a product extension or market extension type of merger.
When two companies come together, it may present beneficial opportunities to each business and their shareholders. However, it may be important to engage in due diligence and have merger documents reviewed by a business law attorney. An attorney may be able to ensure that the merger will win shareholder approval and comply with regulatory standards. None of the information in this article is intended to be taken as specific legal information.
Source: MBDA, “5 Types of Company Mergers“, November 12, 2014