Before starting the unification approach, the representatives of the corps need to assess in advance which kind of procedure will suit them.
As in any other field, there are several kinds and all have their benefits and drawbacks. If you are not sure about your choice, it is best to turn to a reliable M&A advisor like Valley Biggs. But even with such a partner, it is best to try to figure out the procedure on your own. As a minimum, it is important to know the most popular types of mergers and acquisitions. Let’s analyze them in more detail.
The kinds of mergers rely on your pursuits. Each of them is aimed at solving certain problems. The most popular types are considered to be 4 types, namely:
- horizontals;
- verticals;
- unified;
- conglomerate`s consolidation.
Also, in some cases, clients may need another kind of merger, but these are used less frequently. If you want to get skilled employees and their developments first, it’s worth running an acqui-hire transactionprocess. Through such processes, you will get the right people to develop your new venture. However, in most cases, the above 4 types are used.
Horizontal merger
The most expected comparison is horizontal merger vs. vertical merger. The first of them can be initiated by combining two corps that sell comparable yields or offer identical services. This will allow them to strengthen their position in the market and reduce competition. These processes can occur either as mergers of equals (MOE)or by actual takeover by a stronger team of smaller competitors.
This process also has certain disadvantages. Larger companies may be subject to greater regulatory scrutiny after a merger. This leads to a loss of value of the company (roughly speaking companies in 150 and 100 million dollars will not be after a horizontal merger worth 250, but rather about 200 million). It is especially difficult to work in such moments for companies that have not been able to fully realize the integration at the end of the merger process.
Vertical merger
About the horizontal one, it is not correct to call this process reverse mergers in M&A. In these processes, two corps that operate in the same industry but are engaged in different processes merge. For illustration, a retailer and a manufacturer of goods or a retailer and a wholesaler.
With this type of merger, it is possible to significantly optimize all work processes and reduce the cost of supplying goods. But at the same time, there are risks of reducing flexibility in the functioning of your company and possible new complexities in the management of the company.
Single merger
Leveraged buyouts (LBOs) are often used in this case, because companies can buy out potential competitors, and to take their current customer base, such a takeover takes place. Therefore, the cost of the takeover can be significantly higher and the company’s funds may not be enough. But it is a good way for companies to get new sales channels, learn new technologies in production, and expand the product line.
Conglomerate merger
This type raises the most frequent doubts among those wishing to organize a merger or acquisition. In these processes, 2 companies come together, but they operate in radically different areas and may not even be related to each other. They may operate in different markets as well as make a mixed product to expand their product range and reach new customers.
In the case of integrating heterogeneous companies, there can be complications and disruptions in business operations. But in most processes, such a merger was beneficial to the companies.
How to understand which type of merger is most profitable
The above types of mergers are not the only ones. Some companies want to get competent managers in the first place and conduct such types of mergers as Management buyouts (MBOs).But before you start these processes you need to understand exactly what you want to achieve as a result.
The appropriate intermediaries can help you in solving these issues. Valley Biggs is ready to help you solve these issues not just to suggest the best type of merger for you, but to help you organize all the processes as quickly and smoothly as possible.
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Tags: M&A
