Expert: Dirk McCoy - 7/16/2009

Question
I have done some cursory-level research about Mergers and Acquisitions but have not been able to find any clear cut distinction as to the actual types of mergers that exist.  I've seen terms such as horizontal/vertical mergers, integrating operations, etc. but not one complete (i.e., clearly defined) list of merger types.

Can you please shed some light on this for me, once and for all?

Thank you in advance.

Answer
As you've probably seen in your research, synergy and leverage are the key outcomes sought in a merger, with economy of scale being the primary enabler of those synergies.

So the primary distinctions are synergies in customers, production, or management/finance, which are more formerly called horizontal, vertical, and conglomerate categories.  Horizontal being competing firms merging, vertical being firms in a supply chain merging, and conglomerate being firms merged without either of those in common.

Sometimes you'll see product extension and market extension as two additional categories, for a total of five- but they don't offer the same kind of synergy as horizontal and vertical combinations since you're just adding on- unless there is an element of horizontal or vertical synergy included- and so fall under the category of conglomerate mergers.  And conglomerate mergers, where there may be no operational synergies, are intended to leverage management expertise and capital.

Merger evaluation requires a clear view of the strengths of the potential merger participants, an understanding of where resources can be redirected to build additional strength (which can include financial strength via downsizing and cost reduction), and a plan to execute resource reallocations in the least damaging- and hopefully, most enlightening- way possible.

There are additional ways to categorize mergers- domestic vs. international, dilutive or accretive, regulated vs. unregulated- let me know if you have any more questions.