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Mergers and acquisition transactions3/25/2023 A vertical acquisition occurs when a company focusing on any one of these areas acquires another with a focus on one of the others.Ī vertical merger creates value by lowering costs (thereby creating value) in the value chain, which can then be passed on to consumers, creating a more competitive value proposition, or to shareholders, enhancing shareholder returns. If a horizontal acquisition describes a company buying a competitor operating on the same level of the production chain, a vertical acquisition describes what happens when one company acquires another at a different level of the production or value chain. The market extension merger enabled both companies to double their size. In early 2022, two innovative shipbuilders, Wight Shipyard from the UK, and OCEA, from France combined in an all-share merger that gave both increased access to both markets, as well as enhanced resources to take on larger players. Cost synergies tend to be lower here, as companies will retain most of the operations in each country even after the merger occurs. There may also be some technology synergies that can be shared within the countries. The market extension merger creates value primarily through revenue synergies. In these industries, the typically high levels of consolidation that exist incentivize new companies entering the market to undertake acquisitions rather than starting greenfield operations in the new geography Ultimately, the aim is still consolidation, but within a wider geography.Ĭross-border acquisitions are the most commonly seen form of the market extension acquisition, and are particularly common in industries like food retail and retail banking. Market Extension AcquisitionĪ market extension acquisition is a variation of a horizontal acquisition, whereby the companies in question are in different geographic locations. The combined firm was the largest in the world at the time of the merger, creating an undisputed leader in the oil and gas industry, and creating hundreds of millions of dollars in cost and revenue synergies. Two companies with the exact same output (very rare, given that all consumer products are at least a little different). The merger of Exxon and Mobil to create ExxonMobil in 1999 could be seen as the textbook case of a horizontal merger. It is also likely to lead to lower operating costs, as the companies can share production facilities, distribution channels, and human capital. A horizontal merger leads to greater economies of scale in the market(s) that the company operates.
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