Merger types can be broadly classified into the following five subheads as described below. Also further assumptions and limitations have been done in order to handle the complexity and constraints in regards to this. Most mergers are simply done when one firm takeover another firm, but there are different strategic reasons behind this decision. It is the seventhlargest country by area, the secondmost populous country with over 1. Besides, there are several motives for different types of mergers and acquisitions seen in corporate world.
These mergers represent an outward movement by the acquirer from its current business activities within the overarching industry structure. There are five commonlyreferred to types of business combinations known as mergers. Like our online pdf merger, our other online pdf conversion tools are free to use. A merger between companies that operate in completely different and unrelated industries. Product extension merger this is where two companies in the same industry but producing different products merge in order to increase profits by grouping their. Mergers and types of mergers by jagadish k s r14mb019 school of commerce and management 2. Mergers and acquisitions are two different business combinations, although they are thought of as a generic term. Acquirers more frequently bought into different industries.
The greatest antitrust concern arises with proposed. A type of agency which combines segments that are normally separate. Industries dramatically vary with respect to concentration levels. Market extension merger market extension mergers are when two companies in the same industry but in separate markets merge, with the aim of creating a larger customer base. If a large conglomerate thinks that it has too much exposure to risk because it has too much of its business invested in one particular industry, it might acquire a business in another industry for a more comfortable balance. Mergers and acquisitions sometimes happen because business firms want diversification, such as a broader product offering. Conglomerate mergers are divided into pure conglomerate mergers and mixed conglomerate mergers. When two businesses are brought together through a merger or takeover, it is possible to define the nature and type of integration based on the activities of each business and where they operate in the supply chain of an industry. Productextension merger two companies selling different but related products in the same market. Coates iv1 the core goal of corporate law and governance is to improve outcomes for participants in businesses organized as corporations, and for. The lerner index measures the degree to which firms can markup price above marginal cost. A horizontal merger is when two companies who sell the same product or cater to the same demographic come together to increase their reach. Marketextension merger two companies that sell the same products in different markets.
There are two types of mergers that are distinguished by how the merger is financed. Apart from describing the main kinds of mergers, it also talks about the various mis slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising. A conglomerate merger is a union between companies that operate in different industries and are involved in distinct, unrelated business activities. Postmerger performance of acquiring firms from different. This can be either a complete merger where all aspects of the two companies are combined or a partial merger. Another type of acquisition is the reverse merger, a form of transaction that enables a. Postmerger performance of acquiring firms from different industries in. Two companies join forces in the same industry but they are at different points on the supply chain. Conglomerate merger combining companies in different. Section 7 of the clayton act prohibits mergers and acquisitions when the effect may be substantially to lessen competition, or to tend to create a monopoly. Let us look at the types of mergers and acquisitions, the ways the companies can do. A vertical merger occurs when two companies operating at different levels within the same. While both were in the financial services industry, they had different product lines. Horizontal mergers are very common scenarios in industries where there are less competition and very few firms.
A vertical merger occurs when two or more firms, operating at different levels within an industry s supply chain. Foreign takeovers became common with most of them being hostile. A merger occurring between companies in the same industry. They are horizontal merger, conglomeration, vertical merger, productextension merger and marketextension merger. Congeneric merger a type of merger where two companies are in the same or related industries but do not offer the same products. The types of integration are illustrated in the diagram below. Merger is an absorption of one or more companies by a single existing company. Concentric mergers, also called congeneric mergers, occur between companies within an industry that serve the same customers but dont offer them the same. A pure conglomerate merger is between companies with totally nothing in common. Pdf august 1999the impact of mergers and acquisitions on profitability and employee remuneration in uk. Pdf mergers and acquisitions in the hightech industry.
A horizontal merger involves the merger between two or more companies with related or similar product lines. The key question the agency asks is whether the proposed merger is likely to create or enhance market power or facilitate its exercise. There are two types of conglomerate mergers like pure conglomerate merger and mixed conglomerate merger. A merger between companies that are along the same supply chain e. A conglomerate is a combination of multiple business entities operating in entirely different industries under one corporate group, usually involving a parent company and many subsidiaries. A merger is said to be conglomerate in nature if it involves the merger of the two firms that have no common business areas or have unrelated business activity. The term chosen to describe the merger depends on the economic function, purpose of the business transaction and relationship between the merging companies. The fourfirm concentration ratio and herfindahlhirschman index measure industry concentration.
The acquired company represents an acquisition of productline, market participants or technologies of the acquirer. A mixed conglomerate merger is between companies looking for a market or product extensions. A merger between two companies producing different goods or services for one specific finished. A combination agency will take two separate but related services and provide them both to customers.
Table 1 shows examples of different forms of market competition and. Conglomeration two companies that have no common business areas. The 4th wave merger that started from 1981 and ended by 1989 was characterized by acquisition targets that wren much larger in size as compared to the 3rd wave mergers. Mergers and acquisitions and their variations explained. It involves the merging of two or more companies that are in a similar industry is operating in the same space. Mergers and acquisitions whether one looks at the texts of the antitrust statutes, the legislative intent behind them, or the. From a hostile takeover to a friendly merger or a strategic alliance there are many ways companies can combine forces in this article we look at four of the main types of mergers and acquisitions and provide a minicase study of a wellknown merger that did not turn out as planned. You can access these tools for free, or purchase a membership for extra benefits.
Mergers took place between the oil and gas industries, pharmaceutical industries, banking and airline industries. In a conglomerate merger, two or more companies operating in different business lines combine under one flagship company. Types, regulation, and patterns of practice john c. Conglomerate merger is the merger between two companies dealing in different industries or different line of production. This type of merger is generally done to smooth out wide fluctuation in earnings and provide more consistency in long term growth. Efficiencies at the level of the industry are discussed separately in section 2. In this case, the business of the target company is entirely different from those of the acquiring company. The first type of merger were going to look into is horizontal. This chapter provides an understanding of the concept of mergers and acquisitions from industry and regulatory point of view and motives for mergers and acquisitions. When two companies combine together to form one company, it is termed as merger of companies. In these fiercely competitive industries, smaller entities often join forces with. It refers to the combination of two firms operating in industries unrelated to each other. This can be either a complete merger where all aspects of the two companies are combined or a partial merger where only certain parts or responsibilities are now one.
Business mergers is a term used to describe the combining of two companies. A horizontal merger occurs between companies operating in the same industry. Merger refers to the consolidation of two or more business entity to form one single joint entity with the new management structure, ownership and name capitalizing on its competitive advantage and synergies whereas acquisition is the case where one financially strong entity takeover or acquire less financially strong business entity by. Lets dig in a bit to make sure we understand each of these different types of mergers. In case of pure conglomerate merger both the companies have the. The income of a ccorporation is taxed at both the corporate and shareholder levels. U if the merger is with a firm in a different industry. Cogeneric merger is when the companies undergoing merger operate in the same or related industry. First, the income is taxed directly to the corporation. Business firms make use of mergers and acquisitions for consolidation of markets as well as for gaining a competitive edge in the industry. Geographical and spatial perspectives, lead to the complete elimination of a competitor, increased market share, and increased degree of concentration of the acquiring business in the industry. Following marketbased economic reforms in 1991, india became one.
In the case of merger, the acquired company ends to exist and becomes part of the acquiring company. This pdf contains that various types of mergers which exist in an economy. Pdf the impact of mergers and acquisitions on profitability and. This is further divided into, managerial conglomerate, financial conglomerate and concentric conglomerate. Appreciated corporate assets are generally subject to corporatelevel tax if. Mergers and acquisitions are the ways in which businesses get combined. This type of merger is also known as a lateral merger. Conglomerate merger a conglomerate merger is a union between companies that operate in different industries and are involved in distinct, unrelated business activities. While acquisitions are where one company is taken over by the company. Companies merge and acquire each other for many different reasons. In other words countries will get more economic benefits if they concentrate on producing specific types of products within specific range, according to their comparative advantages rather than producing all ranges of. Intra industry trade gives opportunity for businesses to benefit from the economies of scale, as well as use their comparative advantages. Financial performance before and after mergers and acquisitions of the selected indian companies chapter1 introduction. Using our suite of tools, you can rotate pdfs, compress pdfs, split pdfs, and even convert other file types to pdf online free.