MERGERS

ACQUISITIONS

EXERCISES
 PART 1: MERGERS

 I. Definition

 A merger is a combination of two or more firms,

often comparable in size, in which all but one ceases
to exist legally.
 Business combinations may also be defined
depending on whether the merging firms are in the
same (horizontal) or different industries
(conglomerate) and on their positions in the
corporate value chain (vertical).
 PART 1: MERGERS

 II. Types of Mergers

 Horizontal Mergers
 Vertical Mergers
 Conglomerate Mergers
 PART 1: MERGERS

 II. Types of Mergers

1. Horizontal Mergers
 Two companies making the same products combined, in the same
industry
 Horizontal integration: When a company gets bigger by acquiring
competitors in the same field of activity.
 Reasons for Horizontal Mergers
 To reduce competition
 To increase market share
 To acquire additional plants and equipment
 To achieve synergy and economies of scales
 PART 1: MERGERS
 II. Types of Mergers
2. Vertical Mergers
 A company either acquires or merges with another company in an
immediately-related stage of production and distribution.
 Vertical integration: Acquiring companies involved in other parts of the
supply chain, usually to make cost savings.
 Backward integration: Acquiring suppliers of raw materials or components.
 Forward integration: Buying distributor or retail outlets.
Reasons for Vertical Mergers
 To guarantee the supply and cost of raw material and components.
 To be closer to the customers, by cutting out the wholesaler for example
and dealing directly with the retail trade.
 PART 1: MERGERS

 II. Types of Mergers

3. Conglomerate Mergers
A company acquires another company in an entirely
different sphere.
The acquiring firm and the acquired firm are not related
to each other. The acquisition of a food products firm by
a computer firm would be considered a conglomerate
acquisition.
 Reasons for Conglomerate Mergers
 To move into a sector which promises greater growth or
profits.
 Parts
EXAMPLE
Manufacturer

Backward Prior Stage

Accessories Vertical of
Producer
Merger Production

Car Horizontal Merger Car

Manufacturer A Manufacturer B
Same Stage of
Production

Forward Later Stage

Vertical of
Cosmetics Merger Production
Manufacturer
Car
Showroom

TYPES OF MERGERS
 MERGERS: WHY & WHY NOT
REASONS FOR MERGERS PROBLEM WITH MERGERS

Increased market share Clash of corporate cultures

Economies of scale Increased business complexity

Costs of research and Employees may be resistant to

development change

Reduction in competition
 PART 2: ACQUISITIONS

 I. Definition

An acquisition occurs when a company takes a

controlling interest in another firm, a legal subsidiary of
another firm, or selected assets of another firm, such
as a manufacturing facility. They may involve the
purchase of another firm’s assets or stock, with the
acquired firm continuing to exist as a legally owned
subsidiary.
 PART 2: ACQUISITIONS

 II. Types of Acquisitions

 Friendly Acquisitions
 Reverse Acquisitions
 Back flip Acquisitions
 Hostile Acquisitions
 PART 2: ACQUISITIONS
 II. Types of Acquisitions
1. Friendly Acquisitions
 Acquisition of a target company by an acquirer/bidder with the consent or
approval of the management and board of directors of the target company.
2. Reverse Acquisitions
 A smaller firm will acquire management control of a larger and/or longer-
established company and retain the name of the latter for the post-acquisition
combined
3. Back Flip Acquisitions
 The purchasing company becomes a subsidiary of the purchased
company
4. Hostile Acquisitions
 unfriendly takeover attempt by a company or raider that is strongly resisted by
the management and the board of directors of the target firm.
ACQUISITIONS: WHY & WHY NOT
PART 3: EXERCISES