Common types of mergers: part one

Loosely defined, a merger is a combination of businesses. A merger can occur when one business acquires another or when two combine as equals to form a new entity. There are five common types of mergers that business owners and representatives should be familiar with.

How mergers are classified depends on many factors, including the function of the merger, the relationship between the entities being merged and the purpose of the transaction.

A conglomerate merger occurs when two businesses merge whose business activities have nothing to do with each other. Conglomerate mergers may be pure or mixed. A pure merger means that the business activities are completely separate and the merger does not affect each business’ competition.

On the other hand, a mixed conglomerate merger occurs when unrelated businesses merge to expand their competitive reach. For example, a movie production company may merge with a television network to increase the scope of distribution for their films and grow their media business.

A market extension merger takes place when two businesses deal in the same product or service but are active in different markets. The main goal of a market extension merger is to grow each business’ market and increase their client base.

For example, a local publishing company that specializes in small-scale specialty publications may merge with a much larger, more prolific publisher. This could give each business access to the other’s market and allow them both to reach more clients.

A product extension merger is similar, but involves businesses marketing similar

products that are already in the same market. It allows manufacturers to group their products together and reach more consumers.

Next week we’ll discuss two more types of mergers: the horizontal merger and the vertical merger.

Source: The Minority Business Development Agency, “5 Types of Company Mergers

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