Are you looking for ways to grow your small business?
With so much competition, it’s important to look for ways to leverage your position in the marketplace. For example, you might want to consider different types of mergers in order to combine resources and minimize competition.
A horizontal merger is a type of business deal that involves two or more companies. They are competitors in the same industry but merge together to form a single entity. The main goal of a horizontal merger is to gain market share. It also helps increase the company’s competitive advantage in the industry.
Here we take a closer look at how does a horizontal merger work and why it’s important for business. Keep reading to learn more.
How it Works
- Identify Potential Merger Partners: The first step in a horizontal merger is to identify potential merger partners in the same industry. This could involve companies that offer similar products or services or those that have complementary capabilities.
- Negotiate the Terms of the Merger: Once potential merger partners have been identified, negotiations can begin. The terms of the merger will need to be agreed upon, including the valuation of each company, the ownership structure of the new entity, and any financial or operational changes that need to be made.
- Conduct Due Diligence: Before the merger can be completed, both companies will need to conduct due diligence to ensure that there are no hidden liabilities or risks associated with the other company.
- Gain Regulatory Approval: Depending on the size of the companies involved and the industry in which they operate, regulatory approval may be required before the merger can be completed. This could involve obtaining clearance from antitrust authorities to ensure that the merger will not result in a monopoly or unfair competitive advantage.
- Integrate the Two Companies: Once the merger is complete, the two companies will need to be integrated. This could involve consolidating operations and systems, rationalizing the workforce, and rebranding the company.
Benefits of Horizontal Mergers
- Increased Market Power: Combining forces enables companies to gain a larger market share. It also increases their bargaining power with suppliers and customers.
- Economies of Scale: The new entity can take advantage of economies of scale. This includes increased purchasing power, reduced costs, and improved efficiency.
- Access to New Markets: Merging provides greater access to new markets and customers.
- Enhanced Innovation: Combining research and development efforts helps companies leverage their collective expertise.
Here’s a resource that will help you find lawyers for mergers and acquisitions.
Challenges of Horizontal Mergers
- Integration Challenges: Integrating two companies can be a complex and challenging process. That’s because it creates significant logistical and operational hurdles they must overcome.
- Cultural Differences: Different corporate cultures can clash during a merger. This can lead to potential conflicts and inefficiencies.
- Regulatory Scrutiny: Antitrust authorities may scrutinize a horizontal merger. This helps to ensure that it does not result in a monopoly or unfair competitive advantage.
- Financial Risks: The cost of a merger can be significant. Plus, if the integration is not successful, it could lead to financial losses and a decline in shareholder value.
Examples of Horizontal Mergers
Let’s take a look at some huge horizontal mergers from recent years. All four of these historic mergers created one massive entity out of companies
Exxon and Mobil
In 1999, Exxon and Mobil merged to form ExxonMobil. This created one of the largest oil and gas companies in the world. The merger allowed the new entity to gain significant market share. It also helped increase its competitive advantage in the industry.
The Exxon/Mobil merger is a perfect example of this. It’s a deal that helped both companies while reducing their competition.
Nestle and Kraft Foods
In 2012, Nestle and Kraft Foods combined. This decision merged their respective frozen pizza businesses to create a joint venture called “PizzaForno.” The merger allowed both companies to benefit from increased purchasing power. It also improved their economies of scale and access to new markets.
It’s no mystery that the food industry is a very competitive business, which is why this type of merger was a smart move for both companies.
Dell and EMC
In 2016, Dell acquired data storage company EMC. It was a deal valued at $67 billion. The merger allowed Dell to expand its product offerings and gain a larger share of the enterprise IT market.
The deal helped both Dell and EMC gain a bigger advantage without having to compete with each other. Thus it allowed both of them to flourish by combining resources.
Disney and 21st Century Fox
In 2019, Disney completed its acquisition of 21st Century Fox for $71.3 billion. The merger allowed Disney to gain access to Fox’s film and television assets. This included popular franchises like Avatar and X-Men. It also expanded the company’s media and entertainment empire.
At first glance, these two companies couldn’t be any different. But on closer inspection, the deal makes perfect sense. The key is to keep in mind that a merger helped to reduce competition in a tough industry.
The Basics of a Horizontal Merger for Business
It’s no secret that companies are always looking to increase their market power, gain access to new markets, and benefit from economies of scale. Fortunately, a horizontal merger can be a powerful tool to help you take your business to the next level.
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