HomeBlogM&AHorizontal vs. Vertical Acquisitions: A comparison of M&A growth strategies

Horizontal vs. Vertical Acquisitions: A comparison of M&A growth strategies

One of the key reasons for merging with another company or acquiring a new one is growth. But there are different types of strategy depending on the type of growth a company wants to achieve and the nature of the work of the company being merged with or acquired.

If you are thinking of buying another company and merging it with your own, or if you want to acquire another company for whatever reason, you want to consider carefully whether your acquisition should be horizontal or vertical, but first you need to know the difference between the two types, and why you would choose one over the other.

Horizontal acquisitions

A horizontal acquisition is one in which a company buys up another company that offers the same products and services at the same level of production, for example when one restaurant buys another chain, either with the intention of converting all branches into one, or keeping two separate restaurants that generate revenue for one larger company.

A live example of this is when Facebook (or Meta, as they are now known) bought Instagram. They’re both social media organisations, and Facebook (or Meta) stood to inherit considerable market share and power from that sale.

Horizontal acquisitions are a great way to essentially double the size of a business and might occur when one company directly buys out another, or when two companies decide to merge under one large company, essentially going into business together.

Assets and liabilities are combined into one single company and this illuminates inefficiencies, decreases overhead costs, and maintains revenue. This only occurs if the merging companies are chosen carefully, of course. The strengths and weaknesses of companies should be carefully examined to make sure, whether the companies are merging or one company is acquiring another, that the action will be beneficial to both sides.

Mergers sometimes allow newly formed companies to reach new markets and increase their presence in their current markets, which is why they are so favourable for people looking for growth.

Consider a horizontal merger if:

  • you want to expand your company’s presence in the field you are already in,
  • the company you are looking to acquire has different strengths to yours and separate weaknesses you think you can work together to improve,
  • you have sought the assistance of a change management company who believe the merger or acquisition will be successful.

Vertical acquisitions

A company participating in a vertical acquisition would look to acquire a company that fits in somewhere with its production line, but is not operating within the exact same production process.

For example, if Facebook (or Meta) chose to buy out Apple, they’d perhaps automatically install Facebook, Instagram and Whatsapp as standard to their mobile devices. Perhaps you would have to have a Facebook account in order to own an Apple phone. They’ve bought a company that does something completely different in an effort to increase their revenue as a company and influence their existing company.

Vertical acquisitions are a strategic method of increasing the money you earn, because you are not only set to earn from the sale of your new product to consumers, but also from efficiencies you can ensure you pass on to your existing company.

You might consider a vertical acquisition if:

  • you want to increase sales and improve profits without buying out or merging with a competitor,
  • you want tighter quality control better flow and control of information across the supply chain,
  • you want to eliminate the leverage the current supplier has over your company.

You should think very carefully before you embark on a vertical integration. It is not easy to acquire an entirely new company. You should almost certainly acquire the assistance of a change manager as early in the process as you can. They’ll help you identify a company to acquire and develop a clear plan to help you do it.

This is an exciting time, but you should know that a huge amount of mergers and acquisitions fail. They’re a lot of work, throwing up a lot of issues with the integration of staff, processes and technology.

What can a change manager do for me?

Depending on how early you are in the process, a change manager will:

  • help you identify whether a horizontal or vertical merger is right for you,
  • help you find a company to buy,
  • put together a plan to help you merge or acquire successfully,
  • identify staff who can help with a change management plan,
  • set milestones, deadlines, and alternative plan,
  • save you time, money and stress.

Yorkshire Change can help you merge with or acquire another company successfully. For more information, or to speak to a member of our team, please fill in the contact form on our homepage.

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