Horizontal business mergers involve combining two businesses that have similar products, services, and target customers. For example, two companies that offer apartment-cleaning services that merge would be participating in a horizontal merger. The chief advantage of a horizontal merger is that it lets the parties take advantage of economies of scale: As their volume of business increases, average costs decline. The two businesses can also eliminate redundancies in their operations.
Vertical business mergers involve combining different stages of production from companies in the same product line. For example, if a company that makes office furniture combines with a company that produces the materials needed for office furniture, the result would be a vertical merger. At that stage, the office-furniture-making wing of the company would have a steady flow of supplies, and the part-making wing would have a steady buyer. As with horizontal mergers, vertical mergers might offer cost savings through eliminating redundancies.
Sometimes, business mergers occur between businesses that have a similar customer base but do not offer similar products. For instance, a company that offers wedding videography and photography merging with a wedding-planning business would result in a concentric merger. Both provide wedding-related services from different angles. Such a merger allows the resulting organization to advertise themselves as offering a more diverse array of services. In this example, the wedding-planning service would be able to offer packages that include photography and videography without needing to contract outside photographers and videographers.
The rest of Value Capital Funding’s blog posts are a great source for information on other business topics, so be sure to check them out.