Companies are always looking for new ways to gather more customers. Without a consistent stream of profits or cash flow, the company will not thrive and may wind up going belly-up in due time.
One strategy a company may try is merging with another in an attempt to capture more of the market. A merger is the melding of two companies into a new one. They may change their name or retain an older one. In either case, it is not a takeover or acquisition but rather a blending. Merging is a way that both companies can achieve a higher percentage of the market and appeal to a broader audience. Take a look at the most common type of mergers that occur.
The Vertical Merger
Some companies rely on others to provide a vital supply for their business. In manufacturing, it may be a particular part or piece of metal. In sales, this may be a product offering. A vertical merger occurs when two companies that have some sort of reliance on each other decide to join forces. Thus, one company gets unlimited access to the product it needs to function, and the product maker gets constant business and money flow.
The Horizontal Merger
Competition is a fundamental part of the business world. If you want to be successful, you need to be able to compete with like businesses around you. The winner of this gets a higher share of the customer market, and thus, more profit. Joining forces with a company that is the same is one way to increase your presence and garner access to a whole other group of customers. A horizontal merger allows two similar businesses to combine and tap into each other’s customer base for more profits and visibility.
The Concentric Merger
In some instances, one business may complement another, and combining the two will afford the opportunity for each to grow. A concentric merger brings these two complementary service models into alignment and allows one to build off the other. For example, expanding a catering business to include accessory rentals such as chair covers, flatware and other items party planners require keeps the money in the same business rather than a planner going to two different companies.
A merger should benefit the companies in the short and long run. Instead of looking to acquire someone else, bonding with them may be the better course of action. When contemplating combining forces with another company, speaking to a corporate lawyer in Melbourne, FL may help navigate these sometimes tricky waters.
Thanks to the Law Offices of Arcadier, Biggie & Wood for their insight into business law and corporate mergers.
