Types of M&A Deals

There are various types of M&A deals depending upon the companies involved in the deal.

Horizontal Mergers: A merger occurring between companies in the same industry. 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. Horizontal mergers are common in industries with fewer firms, as competition tends to be higher and the synergies and potential gains in market share are much greater for merging firms in such an industry.

Vertical Merger: 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.

Accretive Mergers: A merger is accretive when a firm with a higher price to earnings ratio acquires a firm of a lower P/E ratio. The company’s new earnings will be the sum of the earnings of the two firms. Usually, the new company will maintain the P/E ratio of the acquiring firm. Post-acquisition, will be valued as P/E of acquiring firm X Earnings.

Dilutive Mergers: The reverse of accretive merger is a dilutive merger, and occurs when a company with a lower P/E ratio buys a firm with a higher P/E ratio.

Conglomerate M&A: Conglomerate M&A involves two companies merging together which are not related in any way as far as their operations and products are concerned.

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