Merger performance: horizontal, cross-border and cross-industry- Robin Trehan

Dec. 18, 2008 - PRLog -- Merger performance: horizontal, cross-border and cross-industry-  Robin Trehan

Why do companies choose to merge and does doing so create the outcome expected? There are many reasons for two companies to merge, but the two most common reasons are growth and synergy.  By joining forces, companies hope to increase their reach, grow their customer base and realize greater profits.  Sometimes merging achieves these goals but on occasion doing so creates more problems than benefits for one or both parties. The three most common types of mergers are horizontal, cross-border and cross-industry.  Each has its own unique set of benefits and problems.

Horizontal mergers occur when two companies that are direct rivals join forces.  This type of merger can have little or no effect on the economy. On the other hand, it can have a far-reaching impact.  For example, two family-owned grocery stores from opposite sides of a town might join forces.  For the two grocers, this could be beneficial.  Each now gains access to the profits of the other and adds the other’s customers to its own.  While the two businesses realize potential benefits, the customers may not notice any difference.  Services and products are virtually the same.  

On the other hand, the same town may have two major grocery chains that compete for business.  If they were to join forces, the community would have only one option for shopping and are the mercy of the newly created grocery store.  Prices may be raised greatly and the consumers will have no choice but to pay the price if they want or need the items.  In the United States, the government regulates this type of merger and will not allow any mergers that give one business an unfair advantage in an area, such as the two large grocery chains.  

Cross-border mergers are becoming more common with the increase of technology that can bring two countries on opposite sides of the globe as close as being across the street.  Cross-border mergers can bring about great benefits, but the difficulties can also be great. The merging of two parties in different countries opens up the markets of both, adding potentially thousands of customers that would have been otherwise unavailable.  Customers will also benefit, as they no longer will need to pay as high a price for merchandise that will now be available near them instead of them having to deal with customs and other paperwork.  

This type of merger, as mentioned earlier, is subject to a myriad of obstacles that must be overcome before it can work. Each country may have to deal with government regulations contradictory to their own, or at least different.  Cultural differences may come into play, causing conflict if one or the other party can’t adapt.  Deciding what to do about the currency exchange rates, how financial records will be dealt with and even the leadership structure within each company will all come into play in a cross-border merger.  These mergers can succeed with cooperation from both sides and the benefits can be great.

Cross-industry mergers occur when two totally unrelated businesses join force.  These are very difficult to bring about successfully.  A vast difference in goods or services will require regulations and business practices completely unfamiliar to the second party. Customers may not feel comfortable with the combination and take their business elsewhere.  The best way to give this type of merger a chance of success is to look for two products that may not compete with each other, but enhance or “go with” each other.  Good examples of this type of merger would be a hotel merging with a travel agency or a bookstore and coffee shop merging.  In these cases, the products enhance each other rather than have no connection whatsoever.

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