Horizontal Merger: The Complete Guide 5 Horizontal M&A Examples

By acquiring or merging with other companies, businesses can gain access to new technologies, intellectual property, and other valuable assets. This can help them stay ahead of the competition and differentiate themselves in the marketplace. Additionally, regulatory concerns may arise when companies engage in horizontal integration. Antitrust laws are in place to prevent monopolistic practices and protect fair competition. Therefore, companies must carefully navigate the legal landscape to ensure compliance with regulations.

In today’s fast-paced business landscape, companies are constantly looking for ways to grow and expand their operations. One way to achieve this is through horizontal integration, which involves the acquisition or merger of companies that operate in the same industry or value chain. There are several benefits of horizontal integration that make it an attractive strategy for businesses looking to create synergy through affiliated companies. Horizontal integration can be a powerful tool for companies looking to expand their market reach and increase their market share.

1. By contrast with vertical integration, horizontal expansion supposes merging with companies that are in the same industry and at the same stage of the supply chain.
2. It was also profitable as it allowed for cost-cutting and higher oil prices due to reduced competition.
3. Additionally, regulatory concerns may arise when companies engage in horizontal integration.
4. By acquiring or merging with other companies in the same industry, businesses can gain access to new markets and customers that were previously out of reach.
5. It can lead to economies of scale, improved market share, access to new customer segments, and increased power over the supply chain.

Horizontal vs. Vertical Integration

These real-life examples of horizontal integration demonstrate the benefits and challenges of this strategy. While horizontal integration can create significant value for companies by expanding their offerings and market share, it can also be a complex and risky process. Companies must carefully evaluate potential acquisition targets and ensure that the integration process is executed smoothly to achieve the desired outcomes. In the technology industry, one notable example of horizontal integration is the merger between Dell and EMC. Dell, a leading provider of personal computers and servers, merged with EMC, a data storage and management company, in 2016. By doing so, Dell was able to expand its offerings and offer a more comprehensive suite of products and services to its customers.

Economies of Scale

Increased presence often means greater bargaining power with suppliers and distributors, enabling more favorable terms and pricing. According to McKinsey, the total value of larger deals (valued greater than $25 million) for the year peaked at $5.9 trillion, up 37% from 2020. Most business owners will know a handful of these companies without even having to think about it.

By eliminating duplicate functions and consolidating their supply chains, ExxonMobil achieved significant cost savings. The merger also enhanced their market power, enabling them to negotiate better deals with suppliers and distributors. To strengthen their market presence and competitive positions, companies will execute one of three horizontal integration transactions–mergers, acquisitions, or internal expansion. The differentiation between each strategy offers distinct advantages, whether combining forces with another company, acquiring a competitor, improving corporate finances, or expanding operations from within. Understanding these different types of horizontal integration is key to navigating the complexities of industry consolidation and leveraging growth opportunities.

1. By doing so, Dell was able to expand its offerings and offer a more comprehensive suite of products and services to its customers.
2. This cross-pollination of ideas and resources can foster innovation and drive the development of new products and services.
3. Furthermore, horizontal integration opens up avenues for cost savings and operational efficiencies.
4. By being aware of the potential pitfalls and learning from past case studies, companies can navigate the complexities of horizontal integration and position themselves for long-term success in dominant markets.
5. Horizontal spreads can be used to diversify portfolios and reduce risk, as well as to profit from different scenarios of price movement and volatility.

Internal Expansion

In 2006, CVS announced it had acquired 700 drugstores trading under the names Osco Drug and Sav-On Drug from Albertsons. Already the largest drugstore chain in the country, the extra stores acquired in the deal gave CVS control over 6,000 drug stores across 42 states and the District of Columbia. Shortly after that, the combined bank—with assets valued at over $500 billion—changed its name to Bank of America. Still, notably, the company’s share price (using BankAmerica’s share price in 1998 as a reference) is remarkably close to where it was all those years ago.

Facebook’s horizontal integration of Instagram was truly historic with a return of 100% in just over six years. If merging with them would, on appearances, lead to a stronger company that could avail of more opportunities, then it may make sense to approach them about a merger. Of examples of horizontal integration course, a good approach letter (link to previous article) is an essential first step here. Horizontal mergers are closely watched by the Government in order to avoid oligopoly (where the market is highly concentrated and dominated by a few – not to be confused with a monopoly). When Disney bought Pixar, Disney reaped many benefits, including eliminating competition and acquiring Pixar’s technology and talents.

Because both companies produced hundreds of hygiene-related products from razors to toothpaste, the merger reduced the marketing and product development costs per product. There may be economies of scale or cost synergies in marketing; research and development (R&D); production; and distribution. Or there may be economies of scale, which make the simultaneous manufacturing of different products more cost-effective than manufacturing them on their own.

Since then, the companies have featured a competitive rise as they integrated their capabilities and bundled technologies, gained greater market power, and now provide higher quality. Here are three textbook examples of horizontal integration undertaken by companies that sought to strengthen their positions in the market and enhance their production or distribution stage. Another challenge of horizontal integration is the potential for cultural clashes between the merging companies. Each company may have its own unique way of operating, and integrating these cultures can be difficult. This can lead to tension between employees and management, which can ultimately affect the success of the integration. In 2011, Microsoft acquired Skype, a leading voice and video calling platform, for $8.5 billion.

Reasons for Horizontal Merger

With the sum of its components, the resulting company, Exxon-Mobil, gained and still has immense market power. Vertical integration suits companies seeking more control over their production processes and costs. This strategic move also provided cost savings to services companies by leveraging shared resources and infrastructure, positioning Facebook to dominate the industry further. The integration also facilitated cost synergies by streamlining the production process and distribution channels, reducing production costs, and enabling more revenue generation from a broader array of content. This move toward horizontal cooperation allowed Disney to strengthen its market power and increase its market share in the film and television sectors. Horizontal integration is a strategic move in which a company merges with or acquires another, larger company operating at the same stage of the production process in the same or different industries.

Sometimes benefits can be gained through customer perceptions of linkages between products. For example, in some cases synergy can be achieved by using the same brand name to promote multiple products. However, such extensions can have drawbacks, as pointed out by Al Ries and Jack Trout in their marketing classic, Positioning. DealRoom provides an end-to-end solution to support every aspect of horizontal and vertical integrations, ensuring you can navigate the complexities of M&A confidently and precisely. Transform your company and find out how to add value to your transaction by scheduling a free demo today.