Mergers

Written by Togzhan Batyrbekova

There are two ways in which a firm can grow - either through internal or external growth. Internal growth happens when a firm expands on its own, using investment. External growth happens when firms combine to form a larger enterprise. This can be done through a takeover, which is when a bigger firm buys all the shares of a smaller firm, or through a merger, which is when firms combine operations to form one larger firm. There are 4 types of mergers.

A backward vertical merger is when one firm combines with another firm that is of the same industry but at an earlier point in a production process. For example, a firm that makes chocolate merging with a farm that grows cocoa beans. A forward vertical merger is when one firm combines with another firm that is of the same industry but at a later point in a production process. For example, a firm making chocolate merging with a chocolate store. A horizontal merger happens when 2 firms in the same sector and industry merge, like 2 chocolate producing firms. Conglomerate merges happen between 2 firms in different industries. For example, a firm that makes chocolate merging with a firm that makes shoes.