ASSIGNMENT AC302

1. What is Business Combination?

A business combination is a transaction in which the acquirer obtains control of
another business (the acquiree). Business combinations are a common way for
companies to grow in size, rather than growing through organic (internal)
activities. Combinations can be used to rapidly acquire market share, fill out
product lines, and gain access to new markets.

2. Give Examples
Horizontal Combination

This type of consolidation of two or more organizations operating in the same line of
business. This combination results in a reduction of competition and larger market
capitalization.

Example A combination of two major sugar manufacturers ‘Sugar bell’ and ‘Crystal
Sweeteners’ operating in the same line of business is an apt example of a horizontal
business combination. This would result in the terminate of the competition.

Lateral Combination

This type of business combination is the combination of two businesses that deal in a
different line of business; however, they are connected in some way or another.

 Convergent

A convergent combination is the combination of different units of the business, say

suppliers of raw materials to a major firm. In this type of combination, the larger firm
gets the benefit of having the supply of raw materials and its inventory under their
control.
Example

Supplier A deals in printer ink, papers and folders and Supplier B deals in the same
business. ‘Pressfit’ is a leading printing press. The combination of Supplier A and B
with Pressfit will be a convergent combination.

 Divergent

A divergent combination is the combination of major firms which operate in related

business which uses the products of the major firm as a raw material.

Example

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 An oil refinery organization gives its product which is crude oil to its dependent
organizations as raw materials. The downstream industries use this for creating
petroleum and machinery oils. The combination of such a business is called divergent
lateral combination.

 Diagonal

Diagonal combination refers to a combination of the manufacturing companies with a

service-related business. This helps businesses to provide service for the products that
have been sold and creates a sense of customer satisfaction and trust since the
customer can expect after-sales service at the hands of the organization itself.

Example

Service centres for various mobile phone manufacturers are not owned by the
manufacturer but authorized by them. In this way, the service centre can cater to the
needs of the customer by delivering original spare parts and providing a service that is
authentic and reliable.

 Mixed

Mixed combinations are also termed Circular combinations. These are unrelated
businesses that combine to form a new business is called a mixed combination. The
new business formed will have insights from the management of both the
organizations which will help in creating an organizational and functional structure
that creates the most efficient way to operate the business.

Example

An insurance company combines with a shipping and cargo company to form a new
business is an example of a mixed combination.

3. What are the types of Business Combination?

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