Classification / Types of Mergers Mergers and acquisitions are the ways in which businesses get combined. They can be little intricate to understand all the legal and tax issues surrounding the deals. Mergers and acquisitions are two different business combinations, although they are thought of as a generic term. Let us look at the types of mergers and acquisitions, the ways the companies can do business combinations. DEFINITION OF Table of Contents MERGER 1 Definition of Merger 2 Basis of Classifications Amerger is a business / Types of Mergers: transaction where an acquiring 2.1 Integration Form company takeovers the target 2.2 Relatedness of company as a whole. This Business Activities results in only one company 3 Statutory Merger 4 Subsidiary Merger remaining after the merger. The a smaller target company loses its 3 consolation Merger existence and becomes a part lorizontal Merger of the bigger acquiring 7 Vartical Merger company. , Integration 7.2 Forward BASIS OF Integration 8 Conglomerate Merger CLASSIFICATIONS / | 2 Market Extension Mergers TYPES OF 40 Product Extension Mergers MERGERS: 11 Complementary or Supplementary Merger Mergers can be differentiated Merger or Friendly thotwlowinge depending on arm's Length Merger 14 Strategic Merger INTEGRATION FORM Mergers can be classified depending on how both the companies physically combine themselves in the transaction to form one entity.OF MERGER MERGER ie « bosineee transaction where an sequiting company tskeowess the target company as a whole, Meiger can be clatsiied baced on Form of Integration and Relatednertof business activities, # CLASSIFICATION # Based on Form of Integration Based on relatedness of business Suntory Merger, Subsidiury Mexger, | ( Horzontal Merger, Vertical — Menges, Consolidation Menger Congiomerste Menger, Market Extension. Merger, Product Extension Mesger Other foane of merger includes : Complementary or Supplementary Meme, Houle or Friendly Merges, Anm’s Length Menger, and Stratege Menger eFinanceManagement.com Classification by the Form of Integration: The mergers can be classified as follows on the basis of forms of integration: STATUTORY MERGER A statutory merger is one in which all the assets and liabilitiesof the smaller company is acquired by the bigger (acquiring) company. As a result, the smaller target company loses its existence as a separate entity. Company A + Company B = Company A SUBSIDIARY MERGER A subsidiary merger is one in which the target company becomes a subsidiary of the bigger acquiring company. This happens because the target company may have a known brand or a strong image which would make sense for the acquiring company to retain. Company A + Company B = (Company A + Company B)Classification on the Basis of Relatedness of the Business Activities: The mergers can be classified as follows on the basis of relatedness of the business activities: HORIZONTAL MERGER A merger that happens between companies belonging to the same industry. The companies have businesses in the same space and are generally competitors to each other. A horizontal merger is a feature of an industry which consists of a large number of small firms / fragmented industry. The level of competition is high and the post-merger synergies and gains are much higher for companies in such industries. The motivation behind such merger is economies of scale and control of bigger market share. VERTICAL MERGER A vertical merger is a merger between companies that produce different goods or offer different services for one common finished product. The companies operate at different levels in the supply chain of the same industry. The motivation behind such mergers is cost efficiency, operational efficiency, increased margins and more control over the production or the distribution process. There are two types of vertical mergers: BACKWARD INTEGRATION A vertical integration where a company acquires the suppliers of its raw materials. FORWARD INTEGRATION, A vertical integration where a company acquires the distribution channels of its products.MARKET EXTENSION MERGERS A merger between companies that have same products to offer but the markets are different. The reason behind such mergers is access to bigger markets and an increase in client base. PRODUCT EXTENSION MERGERS A merger between companies that have different but related products but the markets are same. Such mergers allow the companies to bundle their product offerings and approach more consumers. Other Classifications: Besides the above classifications, there are other characteristics of the deals also, that may further define the types of mergers: COMPLEMENTARY OR SUPPLEMENTARY MERGER Acomplementary merger aims at compensating for some limitation of the acquiring company. The acquisition of target company may be an attempt to strengthen a ‘process’ or enter a new market. A supplementary merger is one in which the target company further strengthens the acquiring company. The target may be similar to the acquiring company in this case. HOSTILE OR FRIENDLY MERGER A merger can be hostile or friendly depending on the approval of its directors. If the board of directors and the managers of the company are against the merger, itis a hostile merger. If the merger is approved by them, it is a friendly merger. ARM’S LENGTH MERGERin this case. Conclusion: A business combination gets complex not only with the legal issues but also with the type of a merger. A merger can vary according to the way companies come together or their economic functions. It is important to understand the type of merger to appreciate the intricacies involved.