Types of mergers and acquisitions
There are multiple forms of merger and acquisitions, it depends upon the the nature of
integration, the relationship between two businesses or partners and the objectives being
pursed. The types are as follows ❖​ Horizontal merger
A horizontal meger occurs amongst companies operating in the same industry. This type
of merger is typically a part of consolidation between two or more competitors who are
offering the same or similar service/products. This type of merger is common in
oligopolistic industries where the goal for the compnay acquiring another company is to
increase their market share. The 1998 merger of Daimler-Benz and Chrysler is
considered a horizontal merger
❖​ Vertical Meger
A vertical meger occurs amongs two companies when they create a servies of product
parts for a combined item. This type of merger occurs when two companies who are in
the same industry, but create products product parts at different levels. For example,
two companies, one at the primary level and one at the tertiary level decide to merge, in
order to cut excessive costs. In 2000, the merger between American Online (AOl) an
internet provider and media conglomerate Time Warner, was a very well known merger
❖​ Congeneric Merger
A congeneric merger is also known as a product extension merger, it helps combine
companies in the same sector or market. It merges overlapping companies in the same
industry such as marketing, technology, production process and research and
development. A merger of this type occurs when another company creates a product
which gets added to another company’s line of product, the occurrence of this merger
allows the companies to gain a larger consumer market and bigger market share. The
congeneric merger is Citigroup’s 1998 union with Travelers Insurance. (1)
❖​ Friendly Takeover
In a Friendly Takeover the company’s target the board of directors and the company’s
management to approve the takeover proposal and help it implement the new changes.
In such a takeover the board of directors advise shareholder to vote in favor of the deal.
The acquiring company may offer multiple ways to make the transition easier and
smooth, such as convert their shares or make a cash offer as well as offer a premium
share price.
❖​ Hostile Takeover
In a Hostile Takeover the targetted management and board of directors advice against
the take over and ask the share holder to not sell their share. Although in such a
situation the acquiring company use strategies such as tender offers, which is when they
offer to buy their shares directly at a premium price. They may also utilise the strategy of
a proxy fight, where the acquiring company tries to influence a few shareholders and
gain majority share, thereby overturning the initial decision since they hold more stake in
the company. (2)
❖​ Amalgamation
Amalgamation is a process which refers to when two or more companies merge with
each other in order to form another entity. This leads to the consolidation of assets,
liabilities as well as businesses of the amalgamating companies. It enhances the
performance of the companies, reduces competition and help achieve a large economy
of scale. The shareholders continue holding their shares, the business continues as it
did before although it affects the equity share because of the transfer of shares of the
company. (3)
❖​ Absorption
Absorption is when two companies decide to merge through absorption, where one
company transfers its assets to the absorbing company leading to the existence of only
one company. The company transferring its assets ceases to exist. Such mergers take
place when the two companies are performing complimentary tasks and ideally have a
long standing relationship leading to the formation of one company and cutting out the
extra costs, benefitting both parties. (4)
❖​ Reverse Merger
Reverse merger is when a private company becomes public by gaining purchasing
control of the public company. This type merger allows a private company to become a
private company without raising capital thereby making the entire process easier. This is
a less time consuming merger and cost effective compared to an IPO. A successful
reverse merger will help increase the value of a company’s stock and its liquidity. (5)
❖​ Slump Sale
Under section 2 (42c) of the Income Tax Act,1961 a slump sale means the transfer of
one or more undertakings, by any means for a lump sum consideration without the value
being assigned to individual liabilities and assets. The undertaking should be transferred
as a ‘going concern’. All assets and liabilities including employees, contracts etc must
move with the company and would be a part of this sale. (6)
❖​ Asset Purchase
An asset purchase also known as asset acquisition is when a company buys its assets
instead of its stock. In certain areas, when a company acquires the assets it also
acquires some of its liabilities. Since the acquisition is not whole in nature the assets and
liabilities can be discussed and negotiated over making the process strict in structure
although giving the buyer flexibility compared to a tradition merger or acquisition. (7)
❖​ Cross-border Mergers & Acquisitions
Cross-border Mergers & Acquisitions involves two or more companies from different
countries to combine and form a new entity entirely or one company taking over the
other(s). A merger of this sort allows various companies to venture into new markets,
gain access to new technology, have a larger market share, have an increase in
consumers as well as play a vital role in globalization. It allows a company to grow whilst
dealing with international legalities, cultural differences and post deal complexities. (8)
1.​ https://www.investopedia.com/terms/m/merger.asp?utm_source=chatgpt.com
2.​ https://corporatefinanceinstitute.com/resources/valuation/friendly-takeovers-vs-ho
stile-takeovers/#:~:text=The%20difference%20between%20a%20friendly,compa
ny%20oppose%20the%20intended%20takeover.
3.​ https://finlaw.in/blog/difference-between-amalgamation-in-the-nature-of-merger-a
nd-purchase
4.​ https://www.nordfranceinvest.com/expert-insights/everything-you-need-to-know-a
bout-absorption-merger/
5.​ https://www.investopedia.com/articles/stocks/09/introduction-reverse-mergers.as
p
6.​ https://nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/BusinessTransfer.pdf
7.​ https://corporatefinanceinstitute.com/resources/valuation/asset-acquisition/#:~:te
xt=The%20use%20of%20an%20asset,each%20asset%20to%20the%20target.
8.​ https://www.dfinsolutions.com/knowledge-hub/thought-leadership/knowledge-res
ources/cross-border-mergers-and-acquisitions#:~:text=Cross%2Dborder%20mer
gers%20and%20acquisitions,to%20almost%208%2C500%20in%202023.