In the business world, nothing causes quite a stir among employees than the idea of mergers and acquisition (eg. healthcare mergers and acquisitions are a good example). The whole process can be hard to understand, especially for those not involved at the higher levels of management, but are expected to be affected as part of the process as well.
For employees, this can manifest in either optimistic outlooks that the merger will bring greater things for them and their job, or the opposite, feeling stressed out and worried if they will actually be keeping their job. There is no doubt that the human resources departments have all of these concerns and more on their minds too.
In order to have a better understanding of what is going on and what to expect, employees are encouraged to get know more about the different types of mergers there are. Once you have a clearer idea of what is to come, you can set your expectations and react accordingly.
What are Mergers Exactly?
First off, it is essential to understand just what exactly does a merger entail. The most common scenario is the joining of two companies to form a larger organization, this helps to expand the resulting company’s reach, market share, and more towards creating value for the company.
At the end of the day, it is to create benefits for all the parties involved that are coming together.
Of course, the truth is always going to be far more complicated than just the coming together of two companies. Many other factors are involved, and here are the four types of mergers you can look at to get the big idea.
Horizontal mergers are what takes place when companies operating in the same sphere decide to join forces in order to build on their existing influence in the market. It is usually done between two direct competitors, which can spell more trouble for those smaller in the space.
In a more cynical way of looking at it, horizontal mergers are a great way to eliminate competition. Rather than fight tooth and nail just to get a small margin of victory, a merger does the bigger company more good by bringing the competition into the fold.
This can allow the overall controlling organization to fill a gap, enhance their existing efforts, and bring in a chunk of the market that was previously the competition’s. An example of this merger is where startups are acquired by bigger tech companies. Same product, customers, and market, now consolidated under one roof, that is the perfect horizontal merger.
As for vertical mergers, it is all about improving one specific aspect of the production process. This is not about capturing more of the market share, but more of enhancing the product that is already doing well. In essence, a vertical merger is much less a merger between competition, but rather two entities that are involved in the same supply chain but at different steps.
Take for example, an automobile company that merges with a tire supplier. This will allow the automobile company to push out products with cheaper or better tires and other parts. This allows for more control in terms of quality, pricing, and supply. This is how such mergers allow organizations to beat the competition.
Similar to horizontal mergers but still with a difference, concentric mergers are when companies hope to achieve the all-important increased market share. However, rather than joining up with a direct competitor, it is the indirect competition that provides the foundation for such a merger.
With the same pool of customers but different products being sold, it allows the final organization to corner more of the market in one fell swoop. Such complimentary mergers can occur in almost any industry that deals with multiple products for the same customer base.
As an example, take the appliances market. While an entity may be proficient in selling great washing machines, it may lack the necessary know-how of another company when it comes to rolling out excellent dryers for the customers. Imagine if the two businesses decide to join hands, and in an instance, customers will get access to both awesome washers and dryers under the same roof. The benefits are all around.
Lastly, we have conglomerate mergers. This is where gigantic corporations look to expand their specialization in other areas that they are not involved in just yet. This allows for the rise of industry juggernauts that seemingly have their hands in everything.
There are inherent risks in going for something this big, but the goals and benefits are certainly worth the challenge. Just look at the likes of some of the biggest companies in the world today like Disney and Apple, they are leaders in whichever areas they operate in, and for good reason.
At the end of the day, once you understand the organizations involved and what their objective is, chances are, you already know what kind of merger is taking place. With an eye on the future, you can then decide if it is good or bad news that might potentially be in your future.