A horizontal merger can help both businesses.
A horizontal merger is a business negotiation where two different companies with similar products or services become one and join forces. If a business is failing, this is definitely beneficial and perhaps the only option to avoid a shutdown. While this is obviously helpful for the failing business, it can also be beneficial for the successful business. In fact, there are four primary advantages to merging horizontally with a failing business.
Opportunity to Expand
One of the biggest advantages that comes with horizontally merging with a failing business is the opportunity to expand in whatever market both businesses are in. When two similar companies join forces, they are capable of accomplishing significantly more than if they are separate. As a result, the customer base grows and profits increase over time.
Reduced Competition
Another benefit of this type of business deal is reduced competition. A failing business that was once a significant competitive threat to the successful business is no longer a threat after the horizontal merger takes place. This means that the successful company can spend less time battling for customers and more time improving in other areas.
Increased Market Share
Increased market share is an added advantage for the successful company. For example, if the successful business has a 30 percent market share and the failing business has a 10 percent market share, their combined market share is 40 percent after the merger. In turn, the horizontal merger can make two moderately competitive companies into one very competitive company.
More Dominant Force
After the merger, the successful company becomes a more dominant force in its industry. Although there are federal guidelines in place to prevent monopolies from occurring, a horizontal merger naturally creates a more dominant, unified force in the marketplace. Ultimately, this results in an increase in profits and stock shares.
