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What are some different types of business mergers?

On Behalf of | Apr 26, 2018 | Business Law

People in Virginia may frequently hear of business mergers in the news, but may not pay too much attention to them. However, it is important to note when a merger occurs, as it will change the business landscape with regards to the products or services sold and the market they are sold in. Mergers can be complex, so it is good to have at least a basic understanding of what a merger is and the different types of mergers.

The rationale for executing a merger is that the two businesses joined as one will be a stronger and more profitable business entity than they would be if they remained separate businesses. A merger takes place when two businesses, often of around the same size, combine to form a single enterprise, rather than being owned separately and being run separately. There are many different types of mergers that two businesses could consider entering into.

One type of merger is a horizontal merger. This type of merger involves two businesses that are direct competitors, with the same type of product being produced and sold in the same type of market. A market-extension merger is one where two businesses that sell the same type of products but in different types of markets merge. Conversely, a product-extension merger is one in which two businesses that sell related products but in the same type of market merge. Another type of merger is a vertical merger. This type of merger involves either a business and customer or a business and supplier. Finally, in a conglomeration, two businesses merge even though they do not have a common product or market.

The type of merger two companies enter into can have a significant effect on their futures. Merger negotiations can be complex, as the merging of two businesses is no simple endeavor. Efforts are made to ensure that each business benefits from the merger, and that the newly merged business entity will be successful. It is no easy task, but by taking care to work through all the details and with a solid understanding of business law as it pertains to mergers, two businesses looking to merge can choose the type of merger that is best for them.