5 Types of Mergers and Acquisitions with Examples

To plan a successful merger and acquisition (M&A), dealmakers need to determine the three T’s: your Target company, Timeline, and Type of M&A.

In this article, we'll focus on the most common types of mergers and acquisitions and what they look like in action. These include:

• Horizontal
• Vertical
• Conglomerate
• Concentric
• Reverse

Once you’ve determined the right M&A structure for your transaction, Deel can support you throughout the integration process and beyond. Our in-house regional experts have supported M&As in 30+ countries to date.

What’s the difference between a merger and an acquisition?

The terms ‘merger’ and ‘acquisition’ refer to the unification of two or more companies, but they have different processes and outcomes.

Merger: Two or more companies, usually similar in power or size, voluntarily combine their assets to create a new business or legal entity. The merger is typically agreed upon by both companies and is a more equal partnership than an acquisition.

Acquisition: One company gains control over a target company by purchasing the majority of its shares or assets (not always voluntarily). The acquired company usually ceases to exist as an independent business.

Most M&As are driven by one or more of the following factors:

• Client base expansion
• Fortified supply chains
• Access to different markets 
• Diversification of new products or services
• Increased market share
• Higher shareholder value
• Improved economies of scale

Types of mergers and acquisitions

Your expansion goals, industry, workplace culture, and other factors will determine the right M&A structure for your transaction. Let’s take a look at the definition, advantages, disadvantages, and real-world examples of each M&A structure.

Horizontal

A horizontal M&A is the unification of two or more companies that operate in the same industry. The companies typically produce related products or provide similar services as direct competitors.

Benefits: Commonly, the objectives of both horizontal mergers and horizontal acquisitions are to increase market power, expand customer base, achieve economies of scale, or reduce competition.

Challenges: The larger a company is, the less flexibility and agility it has, and the more scrutiny it must endure. In some markets, a horizontal merger can create a monopoly, where a few players dominate the industry. Monopolies can result in price-fixing, low-quality products, and a lack of innovation. 

Horizontal merger

In a horizontal merger, two or more firms merge to create a single, larger, and stronger business, and cease to exist independently. The companies unite, combining their market share, reducing their immediate competition, and sharing their skills and resources. As an economy of scale, the newly established entity can reduce its outgoings by sharing fixed overheads and accessing lower costs per unit.

Horizontal acquisition

In a horizontal acquisition, one company purchases another company that's its direct market or industry competitor. The acquiring company maintains its independent existence, while the acquired company is absorbed into the acquiring company. For example, a large retailer may expand its market share by acquiring a smaller, competing retailer. The acquisition may be friendly (agreed upon by both companies) or hostile (against the wishes of the target company's management).

Example of a horizontal M&A

The unification of Facebook, Whatsapp, and Instagram is an example of horizontal acquisitions. The three social media platforms were combined under Facebook (now Meta). Facebook purchased Instagram in 2012 for the equivalent of $1 billion (USD), using cash and Facebook shares. Two years later, Facebook purchased Whatsapp for the equivalent of $16 billion (USD), using cash, Facebook shares, and restricted stock units for Whatsapp founders and employees.

In both cases, Facebook was the acquiring company, and Instagram and WhatsApp were the target companies that were absorbed into Facebook, which maintained its independent existence. Although Instagram and WhatsApp continue to operate under their own brands, they do so under Facebook's ownership and control.

Vertical

A vertical M&A is the unification of two or more companies that operate at different stages of the production process or supply chain, such as a retailer and a wholesaler. 

Benefits: Vertical integrations can help companies boost their interactions and cooperation, reduce costs, and streamline the production process and distribution channels.

Challenges: There may be a misalignment of company cultures between a retailer and a manufacturer or factory. There are also significant costs associated with maintaining a factory and employing its workers compliantly. Vertical M&As can also raise concerns about market monopolization.

Vertical merger

In a vertical merger, both companies agree to unify their operations to create a single, integrated entity for its strategic benefits.

Vertical acquisition

In a vertical acquisition, the acquiring company takes control of a target company. For example, retailers often purchase wholesalers or production factories to cut off competitors from certain suppliers or industry knowledge. A vertical acquisition can be friendly or hostile. The acquired organization may continue to operate under its own brand, but under the acquirer's ownership and control.

Example of a vertical M&A

IKEA bought 83,000 acres of forestland in Romania in 2015, to better control its forest operations and ensure long-term, affordable access to sustainably managed wood. In 2021, Ingka Investments, the owner of most IKEA stores, announced its acquisition of 613,000 acres of US forestland across Georgia, South Carolina, Alabama, Texas, and Oklahoma. These purchase support IKEA's goal to become carbon-neutral by 2030 and their commitment to responsible forest management. Ingka Investments purchased over 10,000 acres in Georgia from The Conservation Fund. It assumed all legally binding agreements, including obligations to protect the land from fragmentation, restore the longleaf pine forest, and safeguard habitats of priority species. The general public still has access to the land.

Conglomerate

A conglomerate merger and acquisition is defined as either a pure conglomerate M&A or a mixed conglomerate M&A.

Benefits: Companies that complete a conglomerate M&A often experience more growth and diversification outside their core industry or customer base

Challenges: In some cases, there's a risk of a culture clash and resulting employee attrition; while unfocused business operations can reduce efficiency and profitability

Pure conglomerate M&A

A pure conglomerate M&A is the unification of two or more companies in different industries, such as a software company and a fast-food business. The organizations have no overlapping business activities, interests, products, or services, and there's no buyer-seller relationship or shared supply chain (unlike horizontal and vertical M&As). The primary goal is usually diversification and risk reduction.

Mixed conglomerate M&A

A mixed conglomerate M&A unifies two or more organizations that operate in different industries, but may overlap in areas such as their technology, distribution channels, or customer base. For example, the core business activities of a tech company and an entertainment company are unrelated, but they might use the same tools for digital content distribution. The key aims of a mixed conglomerate M&A are diversification and leveraging potential synergies.

Example of a conglomerate M&A

Amazon acquired Whole Foods Market for $13.7 billion in 2017 to expand into the grocery sector and enter brick-and-mortar stores. Culture clashes were reported after the acquisition, as Amazon’s changes allegedly had a negative impact on employee experience and left customers angry over low stock. Amazon has continued to expand Whole Foods Market's footprint to over 530 stores across the US, Canada, and the UK, as of September 2024.

Concentric

A concentric M&A is also referred to as a congeneric or product extension M&A. It integrates two or more companies operating within the same market or sector, which have overlapping technologies, research and development, processes, or other factors. The integrating companies typically develop similar, complementary products that appeal to the same customer base, for different industries.

Concentric mergers

In concentric mergers, the companies often aim to achieve economies of scale, their increase market share, and leverage synergies. For example, two software companies may merge to create a larger entity with a broader product portfolio and a larger customer base.

Concentric acquisitions

In concentric acquisitions, the acquiring company often aims to expand its market presence, attain new technologies or products, and enhance its operational efficiencies. For example, a large pharmaceutical company may acquire a smaller biotech firm to gain access to innovative drug candidates and expand its research and development capabilities.

Benefits: Companies benefit from cost reductions as they share operational efficiencies and resources. They gain access to new consumer groups and grow their market share. The similarities between the integrating companies reduce the risks associated with the M&A.

Challenges: The similarities between the businesses typically limit their diversification.

Example of a concentric M&A

The 2015 Heinz and Kraft merger to create the Kraft Heinz Company became the largest concentric merger in history. At the time of the merger, the Kraft Heinz Company was valued at approximately $100 billion. It was the third-largest food and beverage company in North America, and the fifth-largest globally.

The goal of the merger was to increase revenue and profits by introducing Kraft’s products to new overseas markets, and to cut costs by reducing human capital. The merger was widely criticized in 2019 when the company announced billions in losses and SEC investigations. As of September 2024, the Kraft Heinz Company owns eight $1 billion+ brands and reports global sales of approximately $25 billion.

Reverse

A reverse merger is when a private company integrates with a publicly traded company that's publicly listed on the New York Stock Exchange (NYSE). It’s also known as a reverse takeover (RTO) or a reverse initial public offering (IPO). Through a reverse merger, a private company can go public without going through the costly and time-intensive conventional IPO process. A reverse merger can also help companies restructure and strategize during financial instability.

The process involves navigating complex regulatory and compliance requirements, with increased due diligence to vet investors’ motivations, liabilities, and risks.

Here are the steps involved in a reverse merger:

1. The private company identifies a suitable public company, often selecting a 'shell company' which is dormant or has minimal operations
2. The private company acquires a majority stake in the public company, effectively assuming control of it
3. The private company merges with the public company, with the private company's shareholders exchanging their shares for shares in the public company
4. After the merger, the combined entity continues to trade on the stock exchange under the public company's ticker symbol, but with the private company's management and operations

Benefits: A reverse merger can be faster and more cost-effective than the traditional IPO process. It provides the private company with access to public capital markets.

Challenges: Reverse mergers can be subjected to regulatory scrutiny, especially if the shell company has a questionable history. Existing public company shareholders may experience ownership dilution, and there may be company culture clashes and operational issues.

Example of a reverse merger

Burger King's integration with British firm, Justice Holdings, to create Burger King Worldwide is an example of a successful reverse merger.

Burger King first began publicly trading in May 2006, after filing an IPO. However, it suffered a financial decline catalyzed by the 2008 financial crisis and the rising popularity of its key competitor, McDonalds. 3G Capital acquired most of Burger King’s stock, turned it back into a private company, restructured the organization, then merged Burger King with Justice Holdings Limited to create Burger King Worldwide. In 2012, it became a publicly traded company on the NYSE again.

Deel's acquisitions

Deel's experts benefit from extensive first-hand experience of the benefits, opportunities, and challenges that acquiring another business presents. To date, we've acquired 9 companies ourselves, namely:

• Hofy
• Payspace
• Zavvy
• Capbase
• Legalpad
• PayGroup
• Roots, and 
• Zeitgold

De-risk your next M&A with Deel

Knowing about the different types of mergers and acquisitions can help your organization make informed and strategic decisions about your expansion.

Deel's comprehensive suite of global payroll, HR, and compliance tools, and our team of in-house experts offer dedicated onboarding support during your M&A.

Deel EOR empowers you to compliantly hire and onboard at speed. This allows you to retain top talent from the companies involved in the M&A and fill any skill gaps with new hires across 150+ countries. If an employee requires a visa, Deel’s in-house immigration team handles the entire visa process in-house, covering 40+ countries

Deel supports payroll across 100+ countries. Global payroll management is often a top priority for new business owners. If you sell your company while managing your payroll through a third-party entity like Deel, the contract can be swiftly and simply transferred to the new owner. This can increase the deal value.

Deel IT procures, delivers, and manages the IT equipment your disparate workforce needs to succeed, across 130+ countries.

To find out more about how Deel could support your M&A, please book a product demo with one of our experts.