Basic Types Of Business Mergers

Most business person is aware that acquisitions and mergers cannot be classified easily. It is not a simple thing to define and explain about various aspects that become the causes whether the mergers and acquisitions are success or failed.

There two types of basic mergers which are the conglomerate mergers and congeneric mergers. Basically the conglomerate merger is the merger between different types of business or industries, while the congeneric merger is the merger of organizations from the same type of business or industries.

The congeneric mergers can be divided again in to two basic types which are the horizontal and vertical mergers. The horizontal merger is the type of merger where organizations that produce the same type of product or service are merger in to a single company.

Meanwhile the vertical merger is happen when the organizations that produce a product is merger with the organizations that produce the supporting product or providing service that supporting the product such as the merger of ice cream cone company with the ice cream company, or with the delivery company.

The horizontal mergers are often monitored by the antitrust legislation because this type of merger can result in monopoly, where a type of product is produced and controlled by a single company. Therefore, the legislation need monitored the merger to ensure the fairness of the business and to make sure that the company does not monopolize the business.

The main reason for business mergers is usually to increase the company’s profit where the company can reach out more customers and expand their market segment. It is also hoped that the business merger will improve the stock value by combining the company’s stocks value.

The merger’s process often called as synergy to define that the business from each party are blend and operated together. Some of the effects that often happen in the synergy are; eliminating the same function in company which will cause staff reductions, expand the market segment, getting the new technology, improve the production capacity to increase the profit and increase the company visibility.

Business Mergers And Acquisitions

In business world, the terms of Mergers and Acquisitions are often used side by side for the activity of combining two or more business organizations. The unification is performed by companies whether they come from the same industry or different industries with different market to become a single business enterprise.

Although it refers to the same activity of combining the business entities into a single entity, merger and acquisition have slight different condition in the term of the size of business organization that performing the unification.

In acquisition the unification process is performed by bigger company to smaller company. In this process the smaller company was bought and takes over by the larger company. In this buyout process the smaller company is inferior to the larger company, so it must follow the larger company decision and policy.

In acquisition, the larger company can decide whether to let the smaller company continue to exist and keep operating their business with the old company name and trading their own stocks but under the bigger company management, so the smaller company will act as subsidiary company. Or, the bigger company can decide to completely cease the smaller company name and stop trading their stocks and operating their business using the bigger company name.

If the smaller company is operating in a different type of market and industry as the bigger company, that is mean the bigger company has branch out to the different type of industry and expand their businesses.

Acquisition is a common practice in business world when big company want to expand their business or want to enter different market and industries but do not want to start from the scratch. So, they do not have to spend their budget in starting up cost such as starting new market research, resources planning, permit, distribution and other startup cost.

Meanwhile in merger the unification process is performed by companies that roughly have equal strength and size. The company name will be decided with the agreement from each parties and each company stocks will be merged and traded as one.