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The Four Common Types of Merger and Acquisition Transactions

A private investor and managerial-level finance professional near Chicago, Illinois, Paul Liska has worked in dozens of different fields over a 40-year career. During that time, Paul Liska has become very familiar with merger and acquisition transactions.

Merger and acquisition (M&A) transactions occur when at least two companies settle on a buyout agreement that involves either mutually combining businesses or aggressively taking control of one of them. There are four main M&A types that differ depending on the relationship between the involved businesses. Each of these is briefly described below:

Horizontal merger/acquisition
When two companies that sell similar services or products come together, it is said that they are involved in a horizontal M&A transaction. These two businesses operate in the same industry, at the same stage of production, and are usually direct competitors.

Vertical merger/acquisition
Vertical transactions occur when two businesses operating at different stages of production within the same industry, such as an apparel company and a textile supplier, join forces. Such transactions minimize supply disruptions and increase market share and profit margins.

Concentric merger/acquisition
For a concentric M&A transaction to occur, the companies involved must serve the same customers in an industry, but offer different services or products. Rather, these products and services often complement one another and would benefit consumers when sold together.

Conglomerate merger/acquisition
Regardless of the stage of production that each company involved in a conglomerate M&A operates in, they both belong to different industries. Such transactions help businesses minimize risk.