Horizontal, Vertical and Circular Mergers
From a legal point of view, a merger is the legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner.
- Horizontal merger: involves firms performing the same activities/functions in the same supply chain. Both firms are in the same line of business. By buying the competitor, the acquiring company is reducing the competition in the marketplace.
- Vertical merger: involves firms performing different activities/functions in the same supply chain. The acquiring firm buys buyers or sellers of goods and services to the company.
- Circular merger: involves firms with different products but similar distribution channels. It is a transaction to combine 2 or more companies operating within the same market, but offering a different product mix. The aim is to increase the product and service offerings within the target market.