The term merger has become a ‘catch all ’expression for a diverse range of transactions.
In this article, DealRoom draws on its extensive industry insights to shed some light on some of the different variations of mergers that exist.
Let’s look at some of the variations of mergers below.
1. Horizontal merger
A horizontal merger occurs when two companies operating in the same competitive space (i.e., they produce and sell the same products or services) combine.

How does it create value?
A horizontal merger leads to greater economies of scale in the market(s) that the company operates in. It is also likely to lead to lowering operating costs, as the companies can share production facilities, distribution channels, and human capital.
Horizontal Merger Example
The merger of Exxon and Mobil to createExxonMobil in 1999 could be seen as the textbook case of a horizontal merger. Two companies with the exact same output (very rare, given that all consumer products are at least a little different). The combined firm was the largest in the world at the time of the merger, created an undisputed leader in the oiland gas industry, and created hundreds of millions of dollars in cost and revenue synergies.
2. Vertical merger
A vertical merger occurs when two companies operating at different levels of the same value chain (e.g. when a producer and a distributor merge) to create a single company.

How does it create value?
A vertical merger creates value by lowering costs (thereby creating value) in the value chain, when can then be passed on to consumers, creating a more competitive value proposition, or to shareholders, enhancing shareholder returns.
Vertical Merger Example
In the strictest sense of the term ‘merger’, vertical mergers are extremely rare: The reality is that vertical transactions are usually acquisitions, as a much larger company buys one of its partners or suppliers, enabling it to ensure better control of its value chain.An example of this occurred when UK frozen food retailer Iceland acquired LoxtonFoods in 2012, allowing it to gain control of one of the many producers itworked with to bring food production in-house.
3. Product Extension Merger
A production extension merger – sometimes called a ‘congeneric merger’ – occurs when two companies operating in the same industry with different products or services come together to provide clients with a complementary product or service offering.

How does it create value?
The product extension merger primarily creates value through revenue synergies, although cost synergies are a secondary benefit. The principal idea for value generation here is that both companies can create significant cross-selling opportunities through the merger.
Product Extension Merger Example
The $90 billion all-share merger between mining firm Xstrata and commodities trader Glencore in 2012 provides an interesting example of a product extension merger. Under the deal, the players said that they would create a ‘natural resources group’ that would be able to trade the commodities as soon as they were mined. In this respect, it could also be seen as a vertical merger, in that one was upstream of the value chain of the other.
4. Market Extension Merger
A market extension merger occurs when two products produce or sell the same products or services, but in different geographies decide to merge, creating a company that spans both geographies.

How does it create value?
The market extension merger creates value primarily through revenue synergies. There may also be some technology synergies that can be shared within the countries. Cost synergies tend to be lower here, as companies will retain most of the operations in each country even after the merger occurs.
Market Extension Merger Example
In early 2022, two innovative shipbuilders, Wight Shipyard from the UK, and OCEA, from France combined in an all-share merger that gave both increased access to both markets, as well as enhanced resources to take on larger players. The market extension merger enabled both companies to double their size.
5. Conglomerate merger
A conglomerate merger occurs when two companies from seemingly completely unrelated markets come together to create a conglomerate, creating a larger diversified company, spread across at least two industries.

How does it create value?
Whisper it, but the consensus now among academics is that there isn’t much value creating from the merger itself – the value generation comes from each of the companies being managed well, which would have happened without the merger. It is possible that both can gain from a larger consolidated balance sheet and the greater benefits that brings.
Conglomerate Merger Example
Although the deals were strictly acquisitions because more cash than shares were exchanged in the deals, Pepsico’s acquisitions of companies like Wendy’s, Burger King, and Pizza Hut in the 1970s and 1980s represent good examples of conglomerate ‘mergers’ with the selling of soft drinks having little relevance to the selling of pizzas (although, it should be noted that all of these restaurants still only have Pepsi on tap, decades after the original transactions).