Successful companies often employ business strategies and innovations to sustain their operations, such as mergers. A merger involves the voluntary unification of two or more companies into a new business unit.
Mergers offer several benefits, including business expansion, reduced competition, access to new customer segments, and entry into new markets. A successful merger can also increase a company’s valuation and benefit shareholders. Typically, companies that agree to a merger have similar sizes and operational scales.
It’s important to note that a merger differs from an acquisition process. In a merger, multiple companies decide to merge and create a new business unit, while an acquisition involves one company taking over another.
Also read: Merger Definition, Types, and Reasons for Companies’ Pursuit
Let’s explore the different types of mergers that companies can pursue based on their goals and strategies:
1. Product Expansion Merger or Congeneric Merger
Types of Company Mergers (source:freepik)
A congeneric merger, also known as a product expansion merger, brings together companies operating in the same market or sector to broaden their product offerings. By merging, these companies can access a larger customer base and expand their market size.
For example, the merger between Citigroup and Travelers Insurance in 1988 exemplifies a congeneric merger. The purpose of this merger was to combine their operations and offer a wider range of financial products and services to their customers.
Similarly, the merger between Mobilink Telecom Inc. and Broadcom aimed to diversify Broadcom’s wireless product line by incorporating Mobilink Telecom Inc.’s handsets into a global system for mobile communication technology. This merger enabled Broadcom to expand its offerings and capture new market opportunities.
Overall, congeneric mergers allow companies to enhance their product portfolios, reach a broader customer base, and achieve growth in their respective markets.
Also read: The Difference Between Merger and Acquisition in Business
2. Conglomerate Merger
A conglomerate merger is the combination of companies operating in unrelated industries. There are two types of conglomerate mergers: pure and mixed.
A pure conglomerate merger involves companies with no similarities, while a mixed conglomerate merger involves companies seeking market and product expansion. An example of a conglomerate merger is the merger between the Walt Disney Company and the American Broadcasting Company (ABC) in 1955.
The merger process creates a new company that faces competition in both markets, similar to before the merger process. Conglomerate mergers allow companies to diversify their operations and enter new industries, potentially reducing risk and expanding their business portfolios.
3. Market Expansion Merger
Market expansion refers to the merger of companies that operate in different markets but sell similar products. The primary goals of such mergers are to gain access to a larger market and expand the customer base.
An example of a successful market expansion merger is Bank Mandiri Tbk, which resulted from the unification of Bank Pembangunan Indonesia (Bapindo), Bank Bumi Daya (BBD), Bank Ekspor Impor Indonesia (Exim), and Bank Dagang Negara (BDN).
Following the merger, Bank Mandiri Tbk was officially established in October 1998 and began operating effectively as a joint bank in 1999. This merger allowed the combined entity to leverage its expanded market presence and offer a wider range of financial services to customers across various markets.
4. Horizontal Merger
Types of Company Mergers (source:freepik)
A horizontal merger is a common occurrence in the business world. It involves the merger of two or more companies that operate in the same industry, typically as direct competitors offering similar products or services. The purpose of a horizontal merger is to reduce competition and leverage synergies between the merging companies, leading to increased profit potential.
Through a horizontal merger, a new company is formed with a larger scale and a broader target market. This consolidation results in the elimination of competition and allows the merged entity to achieve economies of scale. When companies with similar business operations merge, they can streamline processes and reduce production costs.
A notable example of a horizontal merger is the merger between the German automotive company Daimler-Benz and the American automotive company Chrysler in 1998. This merger brought together two renowned automotive manufacturers, enabling them to combine their resources, technologies, and market presence to enhance their competitiveness and achieve greater efficiency in their operations.
Also read: What Are Acquisitions in Business? Here’s What It Means
5. Vertical Merger
A vertical merger is the combination of companies operating within the same industry but at different stages of the supply chain. An example would be an automotive company merging with a supplier of automotive parts. The purpose of a vertical merger is to enhance synergy between the companies, improve control over the supply chain, and increase operational efficiency.
Through a vertical merger, the automotive company can benefit from lower prices for parts and improved quality control in the production process. By integrating the parts supplier as an internal division, the merged entity ensures a more stable and efficient flow of business operations.
An illustrative example of a vertical merger is the merger between America Online (AOL), an internet provider company, and Time Warner, a media conglomerate, in 2000. This merger aimed to combine AOL’s online presence and content distribution capabilities with Time Warner’s extensive media assets, creating a vertically integrated company capable of offering a wide range of online services and content to consumers.
These explanations provide insight into the five types of mergers commonly observed in the business world. It is important to familiarize ourselves with these merger types, as they offer valuable knowledge and understanding of the business landscape. Hopefully, the provided explanation enhances our comprehension of the business world.
