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Maximizing Corporate Value through Mergers and Acquisitions: A Strategic Growth Guide by Patrick A. Gaughan

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Chapter 5

Horizontal Integration and M&A

Horizontal integration refers to combinations between competitors as opposed to those who have a buyer-seller relationship. Essentially, it means buying or merging with your rivals. There are several reasons why companies might pursue horizontal deals including gaining competitive advantages and market power over their rivals as well as seeking consolidation economies of scale. In this chapter, we explore the evidence that exists regarding the extent to which these types of mergers and acquisitions (M&A) generate benefits. As with other types of M&A, we see that sometimes they yield great benefits and others leave the participants no better off and sometimes even worse. This latter possibility is somewhat surprising in light of the fact that horizontal deals do not have some of the inherent problems as other types of M&A, such as diversifying deals. With horizontal M&A, we are merging two businesses in the same industry. It is reasonable to expect that the likelihood of success should be greater than other types of M&A. This is true, but horizontal deals can still present their own challenges.

Advantages of Holding the One and Two Position in the Industry

A horizontal merger between two of the larger companies in an industry may allow the combined entity to attain the number one or two position in the industry. This position by itself may convey competitive benefits over rivals. We have discussed this concept in Chapter 4, where we considered ...

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