Definition - What does Horizontal Merger mean?
A horizontal merger is the merging of companies that operate in the same industry (often competitors), creating economies of scale. A private equity-led roll-up is an example of a horizontal merger, whereby several companies that supply similar services or goods are combined under a common financial and reporting infrastructure to consolidate a fragmented industry.
Divestopedia explains Horizontal Merger
As an owner of a company for sale, you need to be aware of available private equity platform companies looking to combine your industry. This may make your company a prime target for a horizontal merger. Your company may be particularly attractive if it has significant contracts or access to specific customers that the platform company desires. However, keep in mind that horizontal mergers are more subject to government competition review than other types of mergers.
The biggest challenge with horizontal mergers is getting the company cultures to mesh. Imagine running a company and always striving to be better than your competitor, only to find yourselves now having to operate as one company. While a combination like this should prove to be very efficient since a number of synergies can be generated (common systems, real estate, advertising departments, for example), in reality horizontal mergers between competitors are very difficult because egos easily get in the way. Who runs the merged company? What name is retained? These are questions that need to be answered well before the merger is completed, so that the value modeled is realized.
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