Episode 119: Introduction to Mergers and Acquisitions
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- เผยแพร่เมื่อ 9 ก.พ. 2025
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Companies have a few options for achieving growth. The first is by growing organically through the development of new products and production capacity over time. The other option, is through what are known as mergers and acquisitions.
A merger occurs when two companies agree to combine to form an entirely new company. The two companies will agree on a post-merger name, like Exxon and Mobil combining to form ExxonMobil, and determine how to structure the new organization as well as staff operations.
An acquisition occurs when one company purchases another company. The company that is purchased is then absorbed by the purchasing company and ceases to exist on its own. In some situations a company will purchase another, but allow it to operate independently and even keep its original name, such as when Disney purchased Pixar in 2006. This can be to ease the uncertainty associated with an acquisition as well as ensure the acquired company continues operations smoothly. In the case of Disney and Pixar, Pixar had proven to be successful prior to the acquisition and both companies wanted that success to continue unhindered by a new culture and even new staff.
When classifying mergers and acquisitions we can label them as either horizontal or vertical. A horizontal merger or acquisition occurs when the two companies generally produce the same products and serve similar customers. The rationale behind such a merger is the newly merged company will be able to better compete in their respective industry by taking advantage of economies of scale and even technological innovation. It's also worth noting that horizontal acquisitions and mergers can allow companies to expand their product mix and potentially increase revenues by appealing to a wider customer base.
Office Depot and Office Max, two retailers who sell similar products and serve similar customers, are currently in the process of completing a merger. This merger is meant to allow these companies the opportunity to compete more effectively against Internet retail giant Amazon. The joining of Office Depot and Office Max is an example of a horizontal merger. In 2012, Facebook acquired popular photo-sharing application Instagram for $1 billion in cash and stock. In addition to giving Facebook access to Instagram's successful mobile platform, it also eliminated a potential competitor while giving Facebook access to an additional group of customers. Facebook's acquisition of Instagram is an example of a horizontal acquisition since they both operate in a similar industry, providing a similar product to similar customers.
Now a vertical merger or acquisition occurs when the two companies operate at different stages of the production cycle. Because these companies operate at different stages of the production cycle, the merger or acquisition can create increased operating efficiencies and reduce costs.
For example, Google purchased Motorola Mobility in 2012 for $12.5 billion. Motorola Mobility is of course the manufacturer of handset devices while Google was beginning to producing and licensing its Android Operating System. In an effort to control both the hardware and software side of selling smartphones, Google acquired Motorola Mobility. This vertical acquisition allowed Google the opportunity to leverage Motorola Mobility's knowledge of the handset market as well as its staff and operations as opposed to starting from scratch or continuing to rely entirely on other companies for handsets.
Coffee giant Starbucks also used a vertical acquisition to expand its offering of pastries and breads by purchasing San Francisco-based Bay Bread LLC, and its La Boulange bakery brand for $100 million in cash in April of this year. Although Starbucks had already sold pastries, this acquisition gave Starbucks control over a key player in the production cycle: the producer. Instead of purchasing pastries and other baked products from another business in the supply chain, Starbucks is now able to produce them in-house reducing its costs in the process.
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Very well explained. Thank u
Glad to hear that. Thanks for the feedback.
You're welcome! Thanks.
It's awesome. I like it.
Thanks for the help... and the examples....
Thank you so much! Brilliant explanation.
iWaizo I appreciate that! Thank you very much.
Very helpful. Thanks.
awesome explanation
ping pong Thank you!
Awesome very helpful
Never mind re-watched and saw the part about android lol. You're the man!
Glad you found what you needed.
great video, thanks so much
-Alex
Toronto,Ontario
u need to add about product extension and market exntension for mergers and acquisitions...that will help alot... unrelated-conglomerate >> everything else
Thanks mat found your channel someone just send me an loi no idea, ha. will study your past series ;)
That's great! Thanks for subscribing.
Hi, any videos on the motives of M&A?
awesome explanation about M&A i need to know more about how Investment banker play role in this M&A,...
priyanka jalgonkar Thank you! There are some good resources out their if you want to learn more about investment bankers. Good luck!
Wow. you are soooo awesome
Hi! First of all, brilliant video! I've always liked these type of video series and you pulled it off well! :)
Questions: In the case of the Disney-Pixar acquisition, would it be of a vertical or horizontal nature? What happens when an acquiring company is very large and has a division that competes with the target company? Like Disney and Pixar, they both produce films aimed at children (right?). I'm guessing it will be considered both a horizontal and vertical nature?
Nashlives Thank you! I'm glad that you enjoyed it.
IN terms of the Disney-Pixar Acquisition it would be considered more of a horizontal acquisition for reasons you already mentioned. Both companies produced content for a similar target audience and operate at similar stages of the supply chain. With that said Disney is involved at multiple areas of the supply chain (distribution for example), while Pixar is predominantly involved in the creation of the content.
please could you explain the 5 merger waves
thanks x
perfect
Thank you!
I really like your video but I was wondering wouldn't Google merging with Motorola be an example of a conglomerate merger since the two companies are in entirely different fields?
thanks,
You're welcome pandarazful! Don't forget to subscribe so you receive updates when I have new content available.
Great...in the end i was sitting there like "awesome, next video" ;D Sub and Like!
In the context of partnerships, what would be the difference between a merger and a conversion?
Without knowing much about the situation, I'd say merger's are generally used to denote when two firm's combine into one firm. A conversion occurs when a firm actually changes its legal structure. For example, a firm may be structured as a partnership, but then may convert itself into an LLC or S-Corp.
my question is how come mergers for the most part seem to be a good idea initially , but rarely result in greater profits. Why would this be the case?
I haven't looked at the data so I can't confirm whether mergers are rarely profitable. What I can say is that profits aren't always what's important.
Sometimes intellectual property like patents or even personnel are the reason for the acquisition.
So when Uber Technologies offered to buy GrubHub that would be horizontal or verticle? because Uber Eats is the newest and smallest sector of Uber Technologies and the Uber/driving/passengers app is seperate business than the food delivery side. Hopefully you follow
It’s certainly more horizontal than vertical. Regardless of Uber’s transportation business, they also own Uber Eats, which operates a similar business model to Grubhub. Vertical, in this case, wouldn’t make sense since their is no supplier type relationship similar to the examples I provided in the video.
Ok so Google and Starbucks are examples of Forward Vertical Integration, and I don't know if Im right but If a firm buys or merges with another firm in a completely different industry for Example Facebook buying Oculus Rift for 2Billion dollars is that considered a Conglomerate Integration or Diversification?
We're starting to get into semantics here as a conglomerate merger is often done with the intent to diversify and reduce risk. I don't know that those options are mutually exclusive, but if I had to chose I'd say it falls under a diversification strategy. Hope this helps you Saif Khan. Thanks for being one of our loyal subscribers!
5
sexy explanation, your videos is what ive been looking for.. gona get comfy its gona be a long night
easy to understand what is M&A just spend 3 mins can understand what is the different between horizontal and vertical
Thank you!