Mergers and Takeovers

• Mergers involve two businesses joining together, while takeovers involve one company purchasing another.
• Mergers can be a mutual decision between relatively equal firms, while takeovers can be hostile.
• Reasons for mergers and takeovers include rapid growth, warding off new competitors, diversifying into different markets, and gaining market power.
• Different types of integration include horizontal integration (between firms at the same stage of production) and vertical integration (between firms at different stages of production).

Mergers and takeovers involve two businesses joining together to create a larger business. A merger is a mutual decision between relatively equal firms, while a takeover is when one company purchases another, either through agreement or against the wishes of the management. These actions can be driven by the desire for rapid growth, to ward off competition, or to diversify into different markets. Horizontal integration involves merging or taking over firms in the same production stage, providing benefits such as eliminating rivals and achieving economies of scale. However, it can also lead to duplicated job roles and potential redundancies. Vertical integration occurs when firms merge or take over others in different production stages, either moving closer to the final customer (forward vertical integration) or towards suppliers (backward vertical integration). This helps gain control over the supply chain but may require expertise in unfamiliar areas. Inorganic growth through mergers and takeovers can bring significant rewards but also carries risks, such as high costs, potential clashes in culture, and vulnerability to interest rate rises.