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While a merger is defined as the combination of two companies into a larger company, there are many specific types of mergers. Each company is unique and has its own set of objectives and business goals. Most mergers create new partnerships and relationships among companies.
Mergers can take place between many different types of companies in order to increase revenues, efficiency, etc. No matter what type of merger is done between two companies, the result is always to better the company.
Accretive mergers occur when a company with a high price to earnings ratio purchases a company with a low price to earnings ratio. This makes the purchasing company’s earnings per share increase. This type or merger is the opposite of a dilutive merger.
Congeneric Mergers take place when two merging companies are in the same general market but don’t have the same supplier or customer relationships.
Conglomerate Mergers occur when two merging companies who do not have a common business plan pool their resources together.
A “demerger” is a word sometimes used to describe a firm that instead of merging with another firm splits its original company in two creating a second company listed on the stock exchange.
Dilutive mergers take place when a company with a low price to earnings ratio acquires a company with a high price to earnings ratio. This causes the purchasing company’s earnings per share to decrease. This type of merger is the opposite of an accretive merger.
A Horizontal Merger occurs when two companies that offer similar products or services in the same industry merge. This is usually done to attempt at creating lower costs and increased efficiency.
Vertical Mergers take place when two companies that create the same product but in different stages of development merge.
For more information about mergers or acquisitions, contact George & Company.