Understanding Horizontal Merger
When two companies that are operating in the same industry are merged with one another or consolidated with one another it is known as a horizontal merger. When the firms are operating in the same area there seems to be more competition which means that synergies and possible profits in the share market are quite high for the companies that get merged. In order to generate economies of scale that is highly efficient, huge companies attempt horizontal merger very frequently. On the contrary, when the companies want their production operation to become highly efficient there is a vertical merger that happens between two firms that operate in a different industry and consolidate to become cost effective as well.
Horizontal Merger in Depth
The competitive advantages can be obtained with the help of a horizontal merger. An example would be where there are two companies that are selling a product that is of similar type when these two are integrated and the sales upon combining them through the horizontal merger will provide the new firms that have been forming a higher share of the market. On the other hand when there is one company that is offering a different product that will complement the other company when they are merged through horizontal merger when there is a new company formed will be able to provide a wide variety of products to their consumers. And finally, when two companies that are providing different products to a different division of market will help the new firm that has formed upon merger will expand the products it will offer and help in entering new marketplaces.
Advantages of Horizontal Merger
Instead of putting in efforts to develop the products or services singly, the two companies that are already excellent in that particular industry should undergo horizontal merger since that would be a good investment. There is an increase in the revenue of the firm when there is a horizontal merger as they will offer more variety of products to their existing consumers in addition to the products that they are already getting. Either of the two companies that undergo horizontal merger before merger has a facility of distributing to various geographical areas the new company will be able to sell products to other geographical areas or if one of the company has a customer in the territories that are not included by the other firm. The ultimatum of competition in the market is also reduced when there is a horizontal merger.