Definition - What does Vertical Merger mean?
A vertical merger is a merger between companies within the same supply chain. It typically occurs when there is an opportunity to acquire technology or to reduce contracting costs. The more contractual points that exist in the supply chain, the more expensive the end product may become. Therefore, the company that sells to the end customer may chose to vertically integrate the supply chain by completing a vertical merger with its suppliers.
Divestopedia explains Vertical Merger
Vertical mergers are becoming less relevant enow that global supply chains have become more prevalent. However, in industries such as construction, where many services are subcontracted, a vertical merger may still occur so that a complete service package can be offered without losing margin along the supply chain. A company that provides goods or services to a general contractor might find itself targeted if their margins are too healthy and are cutting into the general contractor's margins.
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