There are several reasons why small businesses and corporations go through mergers, each of which benefits the company in a different way. Sometimes mergers are conducted to acquire access to different markets, sometimes to solidify a company’s position in a specific market, and sometimes mergers are undertaken simply to diversify a company’s portfolio of offerings. The three main types of mergers are identified below, along with the advantages accrued from each one.
A vertical merger takes place between two companies which are in the same market, and which produce the same goods, although those goods may be at different production stages. For example, such mergers often take place between companies which provide raw materials, and companies which convert those raw materials into sub-assemblies or finished good assemblies.
For the most part, horizontal mergers take place between companies which make the same products and which have the same customer base. The point of such a merger is to provide an economy of scale, i.e. to achieve efficiencies and savings by producing goods or services in higher volumes. At the same time, the merging of two companies which formally were competitors, increases market share for the combined new company.
Concentric mergers are generally arranged between two companies in the same industry, and which have the same customers, but don’t necessarily make the same products. As an example, if you owned a dessert bakery that produced cookies, cakes, and pies, you might merge with a company that was known for making breads, bagels, and English muffins. The intent of such a merger is to diversify the offerings of the new company, and to achieve internal efficiencies and knowledge derived from the shared expertise of the previously separate companies.
Need funding for a business merger?
If you’ve been thinking about an advantageous business merger, but lack the needed funding to pull it off, we may be able to help you at Goldendale Capital. Contact us at your convenience, and have our financial experts explore possibilities with you that may provide the funding you need to further your plans for business growth.