Types of Mergers and Acquisitions (M&A)

In this section, we look at the most common types of mergers and acquisitions. We explore their differences and similarities, some examples, and pros and cons. Plus, we help you establish which one might be best suited for executing your own business strategy. 

Transform your M&A experience with Ansarada Deals™—start for free today!

Basic types of merger

The four most basic types of merger are horizontal, vertical, congeneric, and conglomerate mergers. Beyond these core types, there are also market or product extension mergers and numerous types of acquisitions that are also in some sense mergers. Keep reading to find out more about each of these.

11 different types of mergers and acquisitions with examples

• Horizontal merger
• Vertical merger
• Congeneric merger
• Conglomeration​
• Market-extension or product-extension merger
• Statutory merger
• Triangular merger
• Share or interest exchange
• Consolidation
• Share or interest acquisition
• Asset purchase
  ​

Horizontal merger

A horizontal merger occurs when two companies operating in the same market (and selling similar products or services) come together to dominate market share. This type is attractive for merging companies aiming to build economies of scale and decrease market competition. However, there are potential downsides. A horizontal merger comes with increased regulatory scrutiny and stringency, and can lead to a loss of value if the post-merger integration is not fully realized. Regulatory due diligence should be executed with extra special care. An example of a horizontal merger might be if McDonald’s and Burger King joined forces. 

Vertical merger

Vertical mergers involve two companies in the same industry who operate in different stages of production. This could involve a retailer who merges with a wholesaler, or a wholesaler merging with a manufacturer, for example. This type of merger is ideal for streamlining operations, boosting efficiencies, and cutting costs across the supply chain, but it can also reduce flexibility and result in new complexities for the business to manage. A well-known example of a vertical merger is the deal between eBay and PayPal.

Congeneric merger (also ‘Concentric merger’)

In a congeneric merger, the acquirer and target company have different products or services, but operate within the same market and sell to the same customers. They could be indirect competitors, although their products often complement each other. As these companies already share similar distribution channels, production or technology, this type of merger can allow the new business entity to expand its product lines and increase market share. As a downside, the fact that these two companies already operate within the same industry could limit further diversification. An example of a congeneric merger is Exxon and Mobil.

Conglomerate merger

Unlike the aforementioned types of merger, a conglomerate merger occurs between two companies whose business activities and industries may be completely unrelated. In pure conglomerate mergers, the two firms may continue to operate separately within their own markets, whereas in a mixed one, they may look to expand product or market reach. 

While this type of merger can help the new entity increase market share and diversify its business, it can be especially challenging to integrate dissimilar companies, raising the risk of culture clashes and lost efficiency due to disrupted business operations. An example of a conglomerate merger is Mars (chocolate bars) and Wrigleys (chewing gum).

Market-extension and product-extension mergers

A market extension merger describes two companies in the same industry who join forces with the aim of expanding market reach. Commonly, this type of transaction occurs across multiple geographic regions. A product extension merger occurs when a specific product is added to the product line of the acquirer from the acquired company.

Statutory merger

In a statutory merger, the laws of the buy-side and sell-side’s state (or states) of formation must be followed. If they’re not, the merger will not be legal. The merger plan must be adopted by the boards of directors and approved by the owners of the absorbed business entity. Then the details must be filed with the Secretary of State in the relevant state(s). In a statutory merger, only one of the two companies keeps its legal entity. In this way, it is similar to an acquisition.

Triangular merger

A triangular merger occurs when there is an acquiring company (ParentCo), a target company, and a subsidiary of the acquiring company. Usually, the subsidiary is newly created specifically to help with the acquisition of the target, i.e. a shell company. Technically speaking, the merger is between the subsidiary and the target, however the outcome of the transaction is that the target becomes a wholly-owned subsidiary of ParentCo. 
The main reason for conducting a triangular merger is so that ParentCo can acquire the target without assuming its liabilities.

Statutory share or interest exchange

Again, this is provided for in some (but not all) US state laws. A statutory exchange has the same outcome as a reverse triangular merger—the target does not cease to exist, it becomes a subsidiary of ParentCo. The advantage of this type of deal as opposed to a triangular merger though is the fact that there’s no requirement for a shell company to make it happen.

Consolidation

A statutory consolidation occurs when two or more business entities combine to form a brand new business entity. The main advantage of this type of merger is efficiency; consolidation tends to improve the bottom line. A good example is the Daimler-Chrysler deal that happened in 1998. 

Share or interest acquisition

An interest or share acquisition is when the buyer purchases shares of the target from the owners. It’s usually the case that the buyer takes all of the issued shares, giving the acquirer total control of the target company.
One major advantage of a share or interest acquisition is that there are no statutory requirements.

Asset purchase

An asset purchase or acquisition is different to a share or interest acquisition in a couple of ways: 

1. In an asset acquisition, the target does not become a subsidiary of the acquiring company; and
2. The purchase price is paid to the business itself, not the target’s shareholders.

​See also:  What is a reverse takeover?

How can you tell which type of merger is right for you?

If you're the target:
The right type of merger for you will ultimately depend on your goals and your M&A strategy. 

Are you looking to boost market share and decrease your competition? Then a horizontal merger is probably your best option. 

Are you looking to streamline your operations and create new efficiencies by integrating with suppliers or wholesalers? A vertical merger will help you achieve this.

If you're the acquirer:
Understanding which type of merger or acquisition will best support your strategy requires a careful look at the pros and cons of each, and the support of an expert advisor for guidance before the companies join together.