It is a commonly held belief that all mergers are sought after with the intention of expanding a business and building revenue, but that just is not always the case. Sometimes companies choose to merge with or acquire another business because they have an ulterior motive and often the type of merger can reveal their true intentions.
In order to determine these motives, it is important first and foremost to know what the main types of mergers are.
- Conglomerate
A conglomerate is a merger between two or more companies with unrelated business activities. Often they operate in different industries or regions.
There are varying scales of conglomerate, the purest of which is when two businesses have absolutely nothing in common. A mixed conglomerate is when two organisations with unrelated business activities merge, but one company is trying to gain product or market extensions, like when Facebook (or Meta, if you prefer) bought Whatsapp.
Companies with absolutely nothing in common will merge with the intention of increasing shareholder wealth if the combined value, performance and cost savings of those two companies would be worth more than the companies when they are separate, which is called ‘synergy’.
Mixed conglomerates are more likely to happen when claiming a higher market share or guiding the industry is the aim of an organisation.
- Congeneric
Congeneric mergers, sometimes known as ‘Product Extension’ mergers, happen when one company merges with another company in order to gain access to a larger group of consumers. Typically, these companies operate in the same market or sector, and one company usually adds a new product line from the other company to its own portfolio.
- Market extension
A market extension happens when two companies that sell the same product but compete in different markets merge together. For example, a bank that operates in America might acquire a bank that operates in Canada. This is usually done in order to gain access to a bigger market and client base.
- Horizontal mergers
You have probably heard of a horizontal merger. This is when two companies from the same industry merge together. Typically they are competitors and offer the same services. Horizontal mergers happen often in industries where there is not a great deal of competition and are typically done with the intention of gaining more market share by creating a larger business. A good example of this is when Rover and Mini merged.
- Vertical mergers
A vertical merger is when two companies that operate at different levels within the same industry’s supply chain combine their operations. These increase synergies and can bring down cost by plugging gaps and streamlining efficiencies.
Key considerations
Before you complete a merger, it is really important to take into account key considerations, the most important of which is what you are hoping to achieve, as this will have a huge impact on the type of company you want to merge with or acquire.
In order to complete a merger or acquisition, it is highly recommended that you have a great M&A lawyer and an experienced M&A Change Manager to help you with the process. Bringing them in as early as possible will help you to define your motivations and you’ll get very important advice about the kind of company you should buy in order to achieve your objectives.
Bring in all the help you can get
M&A transactions are complex and contain multifaceted agreements, multiple deals and challenging issues, both of a legal and strategic nature, so you’re going to need some real professionals to help you out. This is an additional cost and maybe you think you can’t afford it, but the majority of mergers fail, and you stand a much better chance of succeeding if you have professionals helping you make major decisions.
What does a change manager do?
A change manager will embed themselves in your organisation to help you roll out major change across your company by offering simple guidance and hands on support.
Change managers do not just instruct, they actually get hands on. They’ll help you to identify talented employees who could form a change management team, set milestones and targets, and foresee any potential issues in order to iron them out in advance.
This is important because time is money. Trust us, you do not want to be bogged down with the finer details of a merger. You need to continue your business as usual and let someone else – someone experienced and qualified in this work – take the strain.
We can help you whether you are looking for potential targets to buy or you want an end-to-end solution to your merger or acquisition.
To speak to a member of our dedicated team, please fill in the contact form on the homepage of our website.
To contact our M&A specialist directly call 07970 663 505 or email chris@yorkshirechange.co.uk.