Guide to Concentric Mergers: Meaning, Examples, Pros & Cons

“The companies involved in a congeneric merger are typically engaged in complementary, not directly competitive activities,” explains Natasha Gilani from Bizfluent. A horizontal merger is when two companies who sell the same product or cater to the same demographic come together to increase their reach. When it comes to mergers and acquisitions – commonly called M&A – the whole process can be quite confusing and stressful. After all, employees will be wondering if their jobs are in jeopardy and HR has a ton of different tasks ahead of them.

It can be especially challenging to integrate dissimilar companies, raising the risk of culture clashes and lost efficiency due to disrupted business operations. A vertical merger occurs when companies in the same market operate in different stages of production. This type of merger cuts costs and boosts efficiency across the supply chain, but in business, it reduces flexibility and may also create new complexities. In addition to congeneric mergers, there are several other merger types, such as conglomerate, horizontal, or vertical. While there are many reasons why companies engage in mergers, common factors include the potential growth of the business, product diversification, and cost-effectiveness.

Vertical Merger

Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry. A vertical merger occurs when a target and an acquirer are involved in the production of a good or delivery of service at different stages of the production process. A company can control more of its supply chain by purchasing the companies that produce its inputs via an upstream vertical merger. Conglomerate mergers or conglomeration involve the acquisition of one company by another firm from a partially or totally different industry.

It’s an excellent approach for smaller businesses to access markets in other nations that might not have been previously accessible. In forward mergers, the target firm is absorbed by the acquiring or buying company whereas in the reverse merger the opposite happens; the buyer is taken over by the target. Reverse mergers are usually used by private companies to acquire publicly traded companies and hence create a public firm without an IPO. Shareholders of the buyer are usually compensated with stock in the target company.

The Conglomerate Merger

In a deal valued at $70 billion, the two companies joined forces to create Citigroup Inc. While both companies were in the financial services industry, they had different product lines. The congeneric merger between the two allowed Citigroup to become one of the biggest financial services companies in the world.

A vertical acquisition occurs when a company focusing on any one of these areas acquires another with a focus on one of the others. When a company is deciding on an M&A strategy, the type of acquisition it is looking to make will often determine the strategy even before a long list of potential targets is developed. The key idea for value creation here is that both companies can create significant cross-selling opportunities through a merger. Upgrading to a paid membership gives you access to our extensive collection of plug-and-play Templates designed to power your performance—as well as CFI’s full course catalog and accredited Certification Programs. Access and download collection of free Templates to help power your productivity and performance.

Vertical merger

The goal of a market-extension merger is to gain access to a larger market and thus a bigger client/customer base. A vertical merger is a merger between companies that operate along the same supply chain. A vertical merger is the combination of companies along the production and distribution process of a business. The rationale behind a vertical merger includes higher quality control, better flow of information along the supply chain, and merger synergies. A conglomerate merger is a merger between companies whose businesses and industries are entirely different from each other. There are almost zero synergy benefits for conglomerate mergers but there is an opportunity for business risk diversification .

Broadcom deals in the manufacturing Bluetooth personal area network hardware systems and chips for IEEE 802.11b wireless LAN. A very good example of market extension merger is the acquisition of Eagle Bancshares Inc by the RBC Centura. For example, RBC Centura’s merger concentric merger example in india with Eagle Bancshares Inc. in 2002 was a market-extension merger that helped RBC with its growing operations in the North American market. Eagle Bancshares owned Tucker Federal Bank, one of the biggest banks in Atlanta, with over 250 workers and $1.1 billion in assets.

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This is where two companies serving the same client base with similar products in the same field/industry join together to form one big company. The main reason for this type of union is to create monopolies and hence control the market, to reduce competition and market risk, and to create economies of scale in business operations. The merging firms combine all their resources to create a formidable production and marketing force capable of producing a wide range of products for a huge market.

• But as this article shows, that transaction can have many different forms and underlying motivations.
• One of the major benefits of this acquisition is that this acquisition enables the RBC to go ahead with its growth operations in the North American market.
• These companies often share similar technology, marketing, and distribution channels, and look to the concentric merger to create synergies.
• To help take some of the stress out of the equation, we’re going to go over the four most common types of mergers found in the corporate world.
• This allows the merged company to benefit from access to a larger customer base, which could then translate to bigger market share and profits.
• It makes complete sense for them to then merger with a company that produces ink or paper.

“A merger is an agreement that unites two existing companies into one new company,” reports Investopedia. In the most basic terms, an acquisition is simply a transaction wherein one company buys another company. But as this article shows, that transaction can have many different forms and underlying motivations.

A concentric merger is a merger in which two companies from the same industry come together to offer an extended range of products or services to customers. These companies often share similar technology, marketing, and distribution channels, and look to the concentric merger to create synergies. A horizontal merger involves two competing companies in the same industry merging to form one larger company. The potential gains in market share are the primary driving force behind horizontal mergers. Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service.

On the other hand, an acquisition occurs when one firm buys out another firm by acquiring more than half of the latter’s equity in order to control the overall operation of the purchased business entity. The 2015 merger of Heinz and Kraft valued at around $100 billion, is thought to be the largest concentric merger in history. The deal created Kraft-Heinz, a food industry behemoth whose 2019 revenues were $24.97 billion.

The merger was considered a vertical merger due to each company’s different operations in the supply chain – Time Warner supplied information through CNN and Time Magazine while AOL distributed information through the internet. This is where two or more companies with common characteristics are integrated into one diversified or consolidated firm. The merging companies can have similar customer or target market groups, production functions/processes, and/or operational technology.

tips for women to succeed in M&A

Pure conglomerations involve two entirely different firms while mixed mergers feature two partly related companies seeking product or market extensions. A real world example of a pure conglomerate merger happened between Oculus VR and Facebook and a mixed merger occurred when Microsoft acquired the social networking site Yammer. Inherently, the two types of business unions are undertaken with the aim of optimizing profitability by enhancing various strategic business competencies. All these financially oriented benefits result from any of the following types of mergers and acquisitions. Conglomerate mergers are mergers of two business firms engaged in unrelated business activities. Conglomerate mergers and congeneric mergers are two types of business combinations with different characteristics from horizontal and vertical mergers.

A horizontal merger is a merger between companies that directly compete with each other. Horizontal mergers are done to increase market power (market share), further utilize economies of scale, and exploit merger synergies. An example of a congeneric merger is when banking giant Citicorp merged with financial services company Travelers Group in 1998.