Mergers and Joint Ventures Essay
Mergers and Joint Ventures
When a company is first born, the last thing on its owners mind is merging with another company. A merger is sometimes a voluntary and sometimes and involuntary transaction. If a company has found itself in a place of financial difficult or is simply exhausted all its resources to remain open, a merger may be the only way its employees can retain their position. The alternative would be to close its doors and give up. Below we will discuss the differences between horizontal, vertical, and conglomerate mergers and how these differ from a joint venture. Horizontal mergers occur between businesses within the same industry. Often between organizations that share the same space or sell similar competing goods or services. A horizontal merger is simply put two companies who consolidate to work as one to make the goods or services better or more profitably. A good example would be when Hewlett Packard and Compaq merged. Two rival competitors selling similar goods who merged together to continue making products as a team.
According to the Minority Business Development Agency, “a vertical merger occurs when two or more firms, operating at different levels within an industry’s supply chain, merge operations.” The idea behind a vertical merger is synergy. When two companies that are not necessarily selling the same type of product or products, but are in the same supply chain merge together to make a more efficient company is synergy. One example of a vertical merger would be if American Airlines merged with Boeing manufacturing company.
This would cut out the middle man between American and Boeing, and give American more control of the process, versus having to go through a middle man. Conglomeration mergers are mergers between two companies that have nothing in common. Usually these two companies merge to diversify their holdings. An example of a conglomeration merger would be like a company that makes ice cream merging with a company that owns grocery stores. Although the two companies are different, one can help the other and thus make a profit for both of the companies.
The difference between a conglomeration merger and a joint venture is that a joint venture can be entered into by any two companies working separately from their original purpose on a joint project that will produce a profit for both companies. The companies agreeing to a joint venture do not necessarily have to change their original company structure or management. The original company may be a different entity entirely. Joint ventures enable companies to diversify.
All of these mergers are example of companies that joined forces, and either one or both disregarded their individual identity. A joint venture in comparison is when a commercial enterprise is undertaken jointly by two or more parties, while maintaining their individual identities. This could be when a cable company and phone company create a joint venture to offer their customers’ services yet have all their bills on one tab. This makes it easier for companies to offer discounts for bundling services and makes it easy on the customer because they can go to one place rather than several places for different products.
Minority business development agency, U.S. Department of Commerce, (n.d.), Retrieved from http://www.mbda.gov/node/1409 N. Jones, 2010. Mergers vs joint ventures: What’s the difference? Retrieved from: http://www.brighthub.com