Conglomerate and Congeneric Mergers

concentric merger example in india

A merger between two companies producing different goods or services for one specific finished product. A vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations. Most often the logic behind the merger is to increase synergies created by merging firms that would be more efficient operating as one.

In a deal valued at $70 billion, the two companies joined forces to create Citigroup Inc. While both companies were in the financial services industry, they had different product lines. The congeneric merger between the two allowed Citigroup to become one of the biggest financial services companies in the world.

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When we think of their product lines, they can include anything from pet food to detergent, dairy products to frozen foods. A market extension acquisition is a variation of a horizontal acquisition, whereby the companies in question are in different geographic locations. Fundamentally, an acquisition is simply a transaction in which one company purchases another. In the upcoming articles in our series of M&A, we shall focus on the stages of Mergers to understand processes from planning to valuation to integration.

concentric merger example in india

GE is a great example, according to Point Park University, because they work in tons of different areas from aviation to healthcare to household products to various gizmos. GE seemingly does it all and they were able to pull that off by acquiring other companies that specialized in these fields. So, though a merger seems like a troubling move for companies on paper, it’s actually a solid business move that both companies will – if done correctly – benefit from.

Statutory merger

“The companies involved in a congeneric merger are typically engaged in complementary, not directly competitive activities,” explains Natasha Gilani from Bizfluent. A horizontal merger is when two companies who sell the same product or cater to the same demographic come together to increase their reach. When it comes to mergers and acquisitions – commonly called M&A – the whole process can be quite confusing and stressful. After all, employees will be wondering if their jobs are in jeopardy and HR has a ton of different tasks ahead of them.

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Mobilink Telecom Inc. deals in the manufacturing of product designs meant for handsets that are equipped with the Global System for Mobile Communications technology. It is also in the process of being certified to produce wireless networking chips that have high speed and General Packet Radio Service technology. It is expected that the products of Mobilink Telecom Inc. would be complementing the wireless products of Broadcom.

At the time of the transaction, Kraft was a leading producer of mayonnaise, salad dressing, cottage cheese, natural cheese and lunch meat. Heinz, meanwhile, was the world leader in meat sauce, pasta sauce and frozen appetizers.

Vertical Mergers

Although they are executed differently, both mergers and acquisitions involve lots of complex legal and financial procedures and activities. Even though this reason is never stated by the merging firms, it is often about market power. Some firms think, “The bigger, the better.” Economists who are anti-conglomerate think that acquisitions of smaller firms by big conglomerates cause less efficiency in the financial markets.

concentric merger example in india

Both of these types of mergers involve companies that are combining their related business operations. Congeneric mergers also involve companies in related lines of business, while conglomerate mergers do not. A market-extension merger is a merger between companies that sell the same products or services but that operate in different markets.

The Conglomerate Merger

The two companies both operate in the electronics industry and the resulting merger allowed the companies to combine technologies. The merger enabled the combination of Mobilink’s 2G and 2.5G technologies with Broadcom’s 802.11, Bluetooth, and DSP products. A merger refers to an agreement in which two companies join together to form one company. In other words, a merger is the combination of two companies into a single legal entity.

  • The goal of a horizontal merger is to create a new, larger organization with more market share.
  • Learn about modeling different types of mergers in CFI’s M&A Financial Modeling Course.
  • In these industries, the typically high levels of consolidation that exist incentivize new companies entering the market to undertake acquisitions rather than starting greenfield operations in the new geography.

A good example of a horizontal merger in the real world is when the Bank of America merged with Merrill Lynch or the acquisition of Warner-Lambert pharmaceutical company by Pfizer and so on. A congeneric merger can allow a target and its acquirer to take advantage of overlapping technology or production processes to expand their product line or increase their market share. A product extension merger is a kind of congeneric merger where the product line of one company is added to the product line of the other.

Additionally, many saw how banks shut down credit to small businesses in the U.S. during and after the recession. This would not have been such a huge problem if the banking industry had not been so consolidated. Eagle Bancshares also holds the Tucker Federal Bank, which is one of the ten biggest banks in the metropolitan Atlanta region as far as deposit market share is concerned. One of the major benefits of this acquisition is that this acquisition enables the RBC to go ahead with its growth operations in the North American market. Well, there are many reasons for companies to merger, forming a larger, more powerful organization. These reasons are largely what dicates what type of merger the action is labeled as.

Congeneric Merger: Overview, Types, Example – Investopedia

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Not only are the same customers buying all of their products, they are buying at the same exact time. So if the bigger printer company owns the paper company and the ink company, all of the companies involved should benefit from coming together. Along with market power, another reason one large firm may want to acquire another firm is to diversify its operations. If a large firm has just one line of business, it is very vulnerable to the ups and downs of the larger financial markets and the economy.

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In this article, we will look at different types of mergers that companies can undergo. In other words, if you should own a company that makes shoes, you probably would benefit from merging with a company that makes rubber, or a company that makes fabrics. By doing so, you will be able to make your product for a cheaper price by controlling more of the supply chain, which – in effect – gives you a huge competitive advantage. The conglomerate acquisition occurs when a large company has grown through a series of bolt-on acquisitions, usually with a diverse range of product and service lines, geographies, and industry outlooks. Cross-border acquisitions are the most commonly seen form of the market extension acquisition, and are particularly common in industries like food retail and retail banking.

  • Fundamentally, an acquisition is simply a transaction in which one company purchases another.
  • Horizontal merger is a business consolidation that occurs between firms who operate in the same space, often as competitors offering the same good or service.
  • Eagle Bancshares owned Tucker Federal Bank, one of the biggest banks in Atlanta, with over 250 workers and $1.1 billion in assets.
  • This is where two companies serving the same client base with similar products in the same field/industry join together to form one big company.

This overlap between the companies creates synergies (whereby the two companies become greater than the sum of their parts). Our consumption patterns increasingly revolve around conglomerates, who have become experts in acquisitions. DealRoom has worked with companies on every manner of the deal, concentric merger example in india so we decided to provide readers with a brief overview of different acquisition types, along with an indicative example. A typical example usually given by corporate finance textbooks which exhibits this distinction in a simple fashion is an ice-cream manufacturer buying a wafer manufacturer.

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