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How to grow your business quickly, and at low cost? Through a vertical merger or acquisition. When a business merges or acquires another business in its vertical supply chain, it is growing through vertical merger or vertical acquisition. Examples of this type of merger are: a radio station that merges with an advertising agency; a dairy farmer who merges with a dairy products plant; a winery that acquires or mergers with a specialty wine store; and more. These merger acquisitions examples demonstrate the relationship between businesses in a supply chain.

There is a difference between mergers and acquisitions. A merger is often viewed as a more ‘friendly’ action; a decision amongst both parties to merge together. An acquisition is considered more ‘hostile’; a take-over of one company by another. While mergers are most often considered defensive actions to protect market share and position; and acquisitions are often considered offensive actions, this is not always the case. Some businesses look to be acquired if the owners want to retire or sell out. Other businesses chose to merge in order to grow quickly and efficiently. Both mergers and acquisitions have challenges and opportunities in terms of managing the changes within the organization.

The challenges of merging or acquiring two businesses are significant. You need to ensure that the culture of your business is strong enough to handle merging another group of people into your organization. You need to consider whether you need to lay-off or downsize staff in the new organization; how to implement operating efficiencies; how to improve your market position and market share; how to increase revenues and decrease expenses; how to effectively integrate the new customers and orders into the merged or acquired business; and more. It is a lot of work to handle the management of a merger or acquisition; however the benefits are typically large too.

In addition to vertical mergers and acquisitions, you need to understand horizontal mergers. A horizontal merger is where you merge with (or acquire) a competitor. You may want to add their customers to your ’sales book’ or to buy their strengths (which might be a weakness for your business). If your strategic plan is to build a diversified business (and there are some significant advantages to diversification), it is much faster to merge or acquire than it is to build it internally. For example, the company you have targeted might have developed a new product development process that results in a very successful new product launch program. Or they may have better geographic locations or branches that will enable you to grow your sales quickly. Perhaps the target company has successfully entered a new market you are interested in; or won a new long-term key account contract. These are all reasons to consider a horizontal merger.

The growth your business achieves through acquisition or merger is inorganic growth; it can be costly. You need to ensure there is enough value in this type of growth; hire a good accountant to help you with the merger or acquisition accounting. Organic growth is slower, is internal to your business, and it occurs through new product development, sales, resources management, and continuous productivity improvements. An acquisition or merger has key factors that provide a good indication for success. Some of these key success indicators are: the merger or acquisition will provide a big improvement in customer service and resulting customer satisfaction; there is significant alignment with your strategic business plan and vision; you will be able to reduce your costs significantly through merger or acquisition synergies and economies of scale; your organization is capable of managing the change that will be necessary to blend two businesses; and an increase in market share can be achieved through the merger or acquisition.

During the past decade, mergers and acquisitions have become very popular. Not all of these mergers and acquisitions have been successful; the costs have outweighed the benefits. A vertical merger strategy can have a higher opportunity for success than a horizontal merger or an acquisition because often the management of change is more successful and less adversarial. As a strategy for growth, use a merger acquisition checklist to consider vertical mergers.

To learn more about success factors for a vertical merger; diversification options, and other business growth strategies to build and grow your business, visit Kris Bovay’s More For Small Business site.

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