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Types of mergers vary depending on business goals

Just as no two people are alike, nor are any two businesses. This means that the needs of each business will vary based on a variety of things. Some businesses may find that it is in their best interest to merge with another one. But what does that process look like? That depends upon the type of merger that it is.

A vertical merger is one where the businesses merging are not in competition and produce different types of goods. The reason for the merger is probably to make it easier to create a finished product using both goods.

A market extension merger is another type that a business might engage in. In this situation, the businesses merging actually deal in the same products. Their dealings however are in different markets. A merger of this sort could result in a bigger client base as it creates a bigger market.

Conglomerate mergers can be either mixed or pure. Mixed conglomerate mergers are geared toward companies that are seeking market extensions or product extensions. Pure conglomerate mergers however are between companies that do not have anything in common.

When companies that operate in the same market and have products that are related to each other decide to merger, it is called a product extension merger. Similar to a market extension merger, a goal of a product extension merger is to create a bigger client base. This is turn would likely result in higher profits for the business.

Last, a horizontal merger is created when two businesses within the same industry merger. The companies that merger in this scenario often provide the same service or good and may be competitors.

Regardless of the type of merger a business seeks to engage in, it is important that the business works with a lawyer. This is because if done incorrectly, such an agreement could negatively impact the business.

Source: Minority Business Development Agency, “5 Types of Company Mergers,” Accessed Jan. 28, 2015

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