Mergers and Acquisitions
FIN/444
November 17, 2013
Introduction
Mergers and Acquisitions or M&A's are basically the same, the process involves at least two different companies to make a larger company. They are different in some way. A merger is a combination of two companies to form a new company, while an acquisition is the purchase of one company by another in which no new company is formed (investopedia.com, 2013). One company cannot just decide they are going to merge or buy another company without doing homework. You would not purchase a car without test driving it or asking for the carfax. The lead company needs to know what company they are dealing with and what type of M&A it is. There are many types of M&A's such as horizontal, vertical, congeneric, conglomerate, spin-off, divestiture, or carve-out. This paper will not cover all of them but just these five; horizontal, vertical, market extension, conglomerate, and product extension.
Horizontal Merger
A horizontal merger is when companies in the same industry merges together. It happens usually between competitors in the same space offering the same good or service. An example of this could be Nike and Adidas. They are competitors and they both offer the same product such as athletic shoes and clothes. They also compete to do uniforms for the college teams and Nike outfits the NFL. Nike also made headlines with the acquisition of Converse. But that deal did make a larger company, they just took over another brand.
One major example of an horizontal merger is the one that happened in 2001 between Hewlett-Packard and Compaq creating an $87 billion global technology leader. This merger was to make the new HP the industry's most complete set of IT products and services for both businesses and consumers, with a commitment to serving customers with open systems and architectures (hp, 2001). The combination of the two companies helped each company's...