There are a variety of relationships between the companies involved in mergers. The following explains what these relationships are and how they affect the merger.

Horizontal Merger

This merger involves the combining of two companies that are in direct competition with one another. In other words, they are trying to sell the same product to customers who are in a common market.

Vertical Merger

This type of merger involves a customer and a company or a supplier and a company merging. Imagine a baseball bat company merging with a wood production company. This would be an example of the supplier merging with the producer and is the essence of vertical mergers.

Market-extension Merger

This involves the combination of two companies that sell the same products in different markets. A market-extension merger allows for the market that can be reached to become larger and is the basis for the name of the merger.

Product-extension Merger

This merger is between two companies that sell different, but somewhat related products, in a common market. This allows the new, larger company to pool their products and sell them with greater success to the already common market that the two separate companies shared.

Conglomeration

A conglomeration is the merger of two companies that have no related products or markets. In short, they have no common business ties.

Synergy as the Driving Force

Synergy is the main reason that companies merge. This synergy, or revenue enhancement, along with cost savings can be found in various areas of business. Synergy can come in the form of staff reductions as the merger of two companies creates overlap in some positions. For example, if two companies each had a marketing director and the two companies then merged, only one person would be needed to fill the position of marketing director. The newly merged company would be producing more products and reaching more clientele with a reduction in staff. The economy of scale also provides synergy. The economy of scale refers to the benefits that ordering in bulk provides as the size increase that goes along with mergers provides better buying power for the newer, larger entity. This buying power can be utilized when buying office supplies as well as equipment.