Management accounting- mergers and aquisitions Mergers are often categorised as horizontal, vertical or conglomerate. Explain each of these type of mergers in detail.
Mergers are often categorised as horizontal, vertical or conglomerate. Explain each of these type of mergers in detail.
A horizontal merger is a merger between two companies that operate in the same industry and at approximately the same stage of the production process. Horizontal mergers are often motivated by the desire to achieve economies of scale, which can lower costs and make the combined firm more competitive.
The most common reason for a horizontal merger is to achieve cost synergies - that is, the new company can save money by eliminating duplicate functions or consolidating operations. For example, two retail companies might merge in order to better compete against a larger rival, or two airlines might merge to achieve a more efficient route network. Horizontal mergers can also be used to achieve revenue synergies, where the new company can cross-sell products to each other's customer base or bundle products together to create a more attractive offering.
A conglomerate merger is a merger between two companies that operate in different industries. Conglomerate mergers are often motivated by the desire to achieve diversification, which can lower risks by allowing the combined firm to spread its risks across multiple industries.
This type of merger can be beneficial for both parties as it allows them to tap into new markets and gain access to new resources.
However, it can also be risky as it can lead to increased competition and decreased profits.
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