The Difference Between Horizontal Mergers, Vertical Mergers, and Concentric Mergers

Businesses of all shapes and sizes can undergo mergers and acquisitions to expand their market reach, diversify offerings and break into new segments. Joining two companies through a merger or acquisition can be a fast and efficient way to multiply your book of business and increase shareholder value.

Depending on the company’s goals and interests, there are several different types of mergers a small business may pursue. The choice of which to pursue will be a strategic decision leaders should make in consultation with a commercial attorney as well as other corporate stakeholders and decision-makers. 

The 3 Main Types of Business Mergers

While there are many types of small business mergers, the following are the three most common:

  1. Horizontal mergers – This type of merger is common when the overarching goal is to increase market share. Horizontal mergers involve a business deal in which two companies that offer essentially the same products or services join together to create a larger business entity. The volume of business goes up and the average cost to do that business goes down because you can reduce redundancies and achieve economies of scale. An example would be two IT companies in South Florida joining together to create a larger IT business. 
  1. Vertical mergers – The goal of vertical mergers is to create synergy by acquiring another company that is still involved in the same product or service, but is so at a different stage of production. An example would be bank (that didn’t do mortgages) acquiring a mortgage lender.
  1. Concentric or congeneric mergers – When two companies who service a similar industry come together, it’s called a concentric merger. This type of merger allows two complementary businesses to extend their product offering and expand market share by selling a more diverse set of goods or services. A common example is when Citicorp (a commercial bank) merged with Travelers Group in the late 90s. 

You may also have heard about the conglomerate merger. This is a merger of two entities who do not compete at all. In fact, they may be in completely different industries or geographic regions. Conglomerate mergers are relatively rare for small-to-medium sized businesses however, and can be difficult to achieve if a lender is required. That being said, there are many instances where savvy entrepreneurs use cash or equity to build mini-Berkshires – it just takes a knowledgeable attorney to work with them to get the deal across the finish line. 

If you have questions about mergers, acquisitions and Florida commercial law, get in touch with our team at Silverberg|Brito, PLLC.

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