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What is a horizontal business combination?

If a company purchases another company in the same industry and stage of the supply chain, then the acquisition is considered a horizontal business combination. A horizontal business combination allows a company to increase their market share within the same vertical and stage of the supply chain. If the acquired company is in the same vertical but a different part of the supply chain, that is referred to as a vertical business combination.

For example, if Joey’s Burger Shack acquired Matt’s Burger Shack, the primary for this would be to increase the number of locations and presumably the market share. Their might be other reasons, but since both companies operate in the same vertical and same stage of the supply chain, it would be considered a horizontal combination.

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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 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.

  • What is a circular business combination?

    A circular business combination occurs when the combining companies offer different types of products. The products may or may not be complimentary. Circular combinations occur when one company is working to expand its presence in different verticals.