Unlocking the Benefits of a Horizontal Merge: What You Need to Know!

What is a horizontal merger?

A horizontal merger is a type of business merger where two competitors combine forces in a similar market space. Businesses use this strategy to become bigger, reduce costs, and generate higher sales and profits.

Examples of horizontal mergers include:

• Anheuser-Busch and Millercoors merged in 2008;
• AT&T and DirectV merged in 2015;
• Disney and 21st Century Fox merged in 2019.

Although horizontal mergers have the potential to unite complementary skills, technologies and/or resources, they can also become complex legal and logistical issues if two companies are significantly different in size and scope. Assessing the risks and opportunities associated with such a merger is important to identify before moving forward with these types of arrangements. Tips for a successful horizontal merge:

• Consider the synergies available by combining the chain, i.e. sales, marketing, logistics, manufacturing;
• Assess proposed acquisitions for potential customer and supplier overlaps;
• Identify any projected cost savings;
• Understand business management and personnel skills;
• Analyze the balance sheet, the income statement and the cash flows of the two companies;
• Develop an integration plan.

Key points to remember

• A horizontal merger can increase a company’s market presence, avoid acquisition and generate greater profits.
• Potential assets of a horizontal merger include cost savings, access to new markets, and strategic advantages.
• Potential risks of a horizontal merger include antitrust scrutiny and potential talent losses.
• Companies should consider legal and financial advice when planning a horizontal merger and seek to understand all implications.

Why Do Companies Pursue Horizontal Merger?

A horizontal merger is when two companies in the same industry combine to form a single business entity. Horizontal mergers can bring many benefits to companies, ranging from cost savings to easier access to new markets.

Companies can pursue a horizontal merger in order to:

• Increase their market presence and gain more market share
• Avoid being acquired by a competitor by “acquiring first”
• Receive higher profits by reducing costs through economies of scale (e.g. streamlined supply chains, leveraging operational expertise or eliminating redundant activities)
• Use the strengths of both companies to gain a greater competitive advantage in their market
• Enter and expand more easily and easily into new markets

An example of a horizontal merger is the 1999 merger of Exxon and Mobil, two of the largest oil companies at the time. The new company, ExxonMobil, achieved higher levels of profitability, was able to enter new markets and increase its overall market share. The success of a horizontal merger requires close analysis of regulatory compliance, strategic objectives and potential risks. Companies should seek legal and financial advice from experienced professionals when pursuing such a merger.

What are the potential risks of a horizontal merger?

A horizontal merger is a type of business combination that occurs when two companies that are in the same industry and operate at the same stage during the production cycle. This type of merger can bring benefits to both companies, such as greater efficiency and increased market power. However, there are some potential risks associated with this type of combination, such as antitrust scrutiny and potential talent losses.

Antitrust scrutiny: A potential downside of a horizontal merger is that it may attract the attention of antitrust regulators. If the two companies coming together will reduce competition in the industry, regulators may choose to step in and block the merger. This is especially true in cases where both companies have particularly large market shares and their combination will create a company with an unassailable level of dominance.

Talent losses: Horizontal mergers can also carry the risk of talent losses. This happens when the two merged companies have different corporate cultures and philosophies. With any merger, there is fear of job losses and seniority, but it is also possible for companies to lose key talent due to cultural differences between the two companies.

In order to minimize the potential risks associated with a horizontal merger, it is important to do thorough due diligence before making a decision. Companies should assess potential risks, identify areas of synergy and consider all potential antitrust concerns. Additionally, companies should plan for the onboarding process and consider potential talent losses that may occur.

What are the advantages of a horizontal merger?

A horizontal merger is a type of merger or consolidation between entities in the same industry. It is intended to create economies of scale, increased efficiency, higher innovation and improved market position. Therefore, this type of merger offers a number of potential benefits to those who consider it.

• Cost savings and efficiencies – Horizontal mergers can help achieve cost savings and efficiencies through external integration. Such benefits could come from merging identical assets, shared vendor information, or pooling resources in general. In some cases, companies can achieve a great degree of efficiency in their production, distribution and internal organization due to a horizontal merger.
• Increased market power – Companies may benefit from an increase in their overall market power due to a merger. This can enable them to compete better with bigger rivals and also increase the market share. By achieving greater market power, companies can potentially benefit from greater trading profits or better pricing.
• Synergies – Horizontal mergers can also help create synergies. This could include customer relationships and partnerships with the existing organization, or a better understanding of the market and how to tap into it. These synergies can be used to increase customer loyalty or increase customer base and create more value for the business.
• Acquiring New Capabilities – By merging with a rival organization, in some cases, companies can gain access to new product lines, technologies, or capabilities. This could potentially help them enter new markets or stay competitive in the existing one.

Overall, horizontal mergers can have significant benefits and can potentially help organizations gain a competitive advantage in the marketplace. However, they also come with certain risks, such as potential antitrust and legal issues. Therefore, it is important to understand all of the potential implications before entering into a horizontal merger and carefully weigh the pros and cons that come with it.

How is a horizontal merger different from other types of mergers?

A horizontal merger occurs when two companies in the same industry, primarily competitors, join forces to form a larger organization. Horizontal mergers are different from other types of mergers because the combination of the two companies creates a larger and more diverse company in terms of products and services within the same industry.

Here are some examples of the types of horizontal mergers and the impacts they can have:

• A merger between two companies providing online streaming services. This would potentially create a streaming platform with a vast library of content.
• A merger between two airlines. This could create a new airline that is a strong player in the industry and could give them a bigger market share.
• A merger between two rival companies selling office supplies. This could create a stronger competitor that would give them the opportunity to become a leader in the industry.

When evaluating a horizontal merger, it is important to consider its potential impacts on the industry and competition. Here are some tips to help you better understand horizontal mergers:

• Analyze each company’s market share and the potential impacts of a stronger competitor.
• Take an in-depth look at the potential effects of the merger on consumers, industry and employees.
• Be aware of the possible legal implications of a horizontal merger.
• Understand the potential opportunities that may arise from a combined business.

What anti-trust concerns might arise from a horizontal merger?

A horizontal merger is a combination of businesses between two or more competitors that operate at the same stage of production in the same industry. These mergers may raise various anti-trust concerns due to the potential impact on market competition. Some of the major anti-trust concerns related to a horizontal merger are discussed below.

• Less Competition: A primary reason for anti-trust concerns arises from the potential for less competition in the marketplace due to a horizontal merger. If a merger brings together two large competitors, it may reduce the available number of suppliers and create higher market concentration, which may reduce market competition and result in higher prices for consumers.
• Barriers to Entry: A horizontal merger may also lead to reduced competition by increasing barriers to entry for small businesses. Large companies resulting from a merger have greater market power and may have resources to engage in strategies such as pricing and research and development investments that hinder market entry by small enterprises.
• Reduced Innovation: Another potential antitrue concern of a horizontal merger is the possibility of reduced innovation. The elimination of competition can lead to a reduced incentive to invest in research and development, which can reduce the rate of technological innovation and consumer choice in the marketplace.

In many cases, the impact of a horizontal merger on market competition is reviewed by antitrust authorities as part of the approval process. Companies can work with antitrust attorneys to assess potential antitrust risks resulting from the merger and develop strategies to protect market competition and mitigate the risk of antitrust concerns.

How is the economic impact of a horizontal merger assessed?

A horizontal merger is the consolidation of companies operating in the same industry and at the same level of the supply chain. Careful assessment is required to determine the economic impact of a horizontal merger, as the combination of the two companies may result in increased market power, increased prices, decreased production, and/or reduced innovation.

In assessing the economic impact of a horizontal merger, the following should be considered:

• Antitrust Law: The merger must comply with federal antitrust law, which prohibits mergers that result in a substantial lessening of competition or the creation of a monopoly. Reviews by the Federal Trade Commission (FTC) and the United States Department of Justice (DOJ) Antitrust Division are often required to determine whether or not the merger will be approved.
• Market share: The market shares of merging companies should be compared to determine whether they will gain market power that could lead to anti-competitive effects.
• Competitive Analysis: A thorough competitive analysis in the affected markets should be performed to determine whether competitors will be able to compete effectively in the new market.
• Price Analysis: Changes in the prices of the products and services of merging companies should be analyzed to determine how they will affect consumers.
• Innovation analysis: The effect of the merger on innovation must be assessed to determine whether there will be a significant negative impact on research and development activities.

Overall, a full economic assessment of a horizontal merger should be conducted to identify any potential anti-competitive effects and to ensure that market competition is not significantly lessened by the merger.

Conclusion

A horizontal merger is the combination of two companies in the same industry that operate at the same stage during the production cycle. This type of merger can bring benefits to both companies, such as greater efficiency, increased market power and potential cost savings. However, it also comes with potential risks, such as antitrust scrutiny and potential talent losses. Understanding all of the implications of a horizontal merger is key to maximizing its potential benefits and minimizing its potential risks. Companies should seek legal and financial advice when considering a horizontal merger to ensure it will be successful.