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What is a diagonal business combination?

A diagonal business combination is when two companies that provide support services combine to make them one company. The main objective in a diagonal business combination is to make the support service larger and self sufficient.

For example, if one company is a manufacture and one provides repair services, then they would merge so that both companies would be self sufficient on a combined basis.

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  • What is a vertical business combination?

    A vertical business combination occurs when a company acquires another company that is in the same vertical or industry, however, the company operates in a different stage of the supply chain. If a company acquired a company in the same vertical and same stage of the supply chain, then that would be a horizontal business combination. For example, if the company sold burgers, and they acquired a company that was a supplier of burger meat, then that would be considered a vertical combination. Vertical integration allows for companies to achieve cost savings because they are no longer paying a markup on a product that they need to purchase.

  • What is the difference between a horizontal and vertical business combination?

    The key difference is that each company operates in a different phase or stage of the supply chain. A horizontal business combination occurs when a company acquires another company in the same industry or vertical, and that company is in the same phase of the supply chain (both companies manufacture cars). A vertical business combination would occur when the companies are in the same industry or vertical, but they operate in different phases of the supply chain (one manufactures cars, while the other sells cars). There are a number of pros and cons to each type of business combination. Many economists believe that companies should seek to horizontally and vertically integrate. Business combinations can draw a lot of scrutiny from regulators, especially if they result in monopolies.

  • What is a business combination?

    Learn More A business combination is a type of event or transaction and occurs when one company gains control (acquirer) over another company (acquiree). The main reason a company would consider a business combination is because the combined business would be stronger than the individual business operating separately. The acquirer would acquire the other company to obtain control of its assets, people, or its intellectual property (IP). In addition, it may allow the company to enter a new market, geography, or gain on a leg up on its competitors. Business combinations also occur to keep small companies from growing and disrupting the existing players in the space. There are four main types of business combinations that can occur. They include horizontal (lateral) combinations, vertical combinations, circular combinations, and diagonal combinations: 1) Horizontal combination: A horizontal combination will occur when companies in the same industry join together under single management and are in the same phase of the supply chain. For example, a burger chain acquirers another burger chain to increase the number of stores and presence in the community. 2) Vertical combination: Vertical combinations are describes when the combination of companies that are in different stages of the production process. For example, a burger chain might be a company that supplies burger products to a number of different burger store brands. 3) Circular combination: A circular combination is a business combination of companies that are engaged in different businesses and those producing different products. For example, if a cell phone company bought a car manufacturing company, that would be an example of a circular combination. 4) Diagonal combination: Diagonal combinations are considered those in which a company that produces the primary good combines with a company that providers ancillary support for that primary activity. Learn More