There are a dozen different ways for businesses to finance, merge, and acquire one another. In theory, there are as many ways of handling the process as there are reasons for mergers.
For clarity, mergers and acquisitions is a more general term used to describe the consolidation of whole companies or assets. Frequently, mergers and acquisitions are two terms used interchangeably, which isn’t entirely accurate, as both have clear and different definitions.
Mergers
A merger occurs when two (or more) companies come together to form one larger company. In this instance, the two companies are typically equal in size, and their consolidation is mutually beneficial.
Acquisitions
Conversely, an acquisition occurs when one company buys or takes control of another, such as purchasing all assets, acquiring the majority in stocks, etc. In this instance, the company behind the acquisition is the one in power and thus has more to gain from the process.
Consolidations
While mergers and acquisitions are the two most common terms, they are far from the only ones. Another common form is called consolidation. During consolidation, two companies combine to create an entirely new one. They do so by combining core businesses but not the structures that initially existed.
Types of Mergers and Acquisitions
There are four main types of mergers and acquisitions. These are; horizontal, vertical, concentric, and Conglomerate. Horizontal M&A is the term applied when the companies share the same specialty. That is to say when a company acquires or merges with another company that produces similar products or services.
Meanwhile, vertical M&A has a different take on the process. Here, two companies from different stages in a supply chain can come together (through merging or acquiring) to increase efficiency and save costs.
Concentric M&As are similar to Horizontal in that the companies share common interests. However, it doesn’t have to be the same product or service for Concentric M&As, and instead can be applied to a shared industry as a whole.
Finally, there’s Conglomerate. This is a term that most people are likely familiar with. Conglomerate M&As occur when two companies come together – regardless of product, stage, or industry specialization – and create one larger company. Many of the larger companies the come to mind are actually from Conglomerate M&As.