There are several ways to expand to international markets, such as entity establishment or foreign subsidiaries. But, many investors opt for choosing between one of the types of merger and acquisition since it can also offer outstanding benefits.
In this article, we are going to address all the types of mergers and acquisitions so you can gain more understanding about each one. Since this is a great way to enter Libya, it is important to understand what it is, how it is done, and how many options you have. Let us observe:
- What is merger and acquisition?
- What is the definition of a vertical merger?
- How is a horizontal merger done?
- What is a conglomerate merger?
- How is the market extension merger carried out?
- What is a product extension merger?
- What is a reverse takeover?
- How to define a congeneric merger?
- What is an acqui-hire?
- How can Interlibya help you with mergers and acquisitions?
What is Merger and Acquisition?
Before starting to understand the types of mergers and acquisitions, it is important to define the general concept. First of all, it is important to point out that these are two different actions.
A merger is when two companies, usually of similar size, carry out a transaction where the shareholders of each corporation decide to jointly own the shares of the company resulting from the merger.
Therefore, a merger is a crucial step that two companies take. For this reason, there have been mergers that failed. This is because something went wrong.
On the other hand, an acquisition is a process in which a company buys the shares of a target company. In this transaction, the shareholders of the company that was sold receive the proceeds from the sale.
To sum up, a merger happens when shareholders jointly own shares, and acquisition is when one company is sold to another.
Although these are two types of transactions, the term “merger and acquisition” has become a common term to define the several types of negotiations that exist in this regard.
When it comes to the types of merger and acquisition, there are 7:
- Vertical merger
- Horizontal merger
- Conglomerate merger
- Market extension merger
- Product extension merger
- Reverse takeover merger
- Congeneric merger
Is Merger and Acquisition Safe?
Deciding on a merger or acquisition for entering the Libyan market may be perfect for your business. However, as with any expansion opportunity, there are risks involved.
You need to evaluate all the factors that are involved in a merger or acquisition, so you can make a wise decision. The best advice is to research the potential issues that you may face, so you can be prepared.
Moreover, there are many complexities surrounding this matter, particularly if you are planning to merge or acquire a Libyan company. For this reason, you always need to have experts by your side backing your operations. In this regard, it is important to talk to business consultants to determine what may be best for your company.
What is the Definition of a Vertical Merger?
One of the most common international acquisitions is a vertical merger. This transaction involves two companies that bring together their efforts since they provide a similar product or offer a similar service.
In this case, the merger creates a synergy where the two companies benefit from the merger into a bigger corporation.
This is because they have an increase in assets and can improve their supply chain operations. Therefore, a vertical merger is a great move for two companies.
In some cases, the vertical merger is done for companies that are competitors, but in other cases, it happens that they are logistically compatible and thus the merger has sense.
For example, a company that focuses on a specific area may decide to merge with another company that focuses on a complementary area.
The result is a new combined company that reduces costs and offers a competitive value proposition.
What is a Vertical Acquisition?
Since we mentioned that merge and acquisition are two different terms, a vertical acquisition refers to when a company buys another one that works at another level of the production chain.
How is a Horizontal Merger Done?
If you have been considering a Libya expansion company, you may want to think about a horizontal merger as an option.
A horizontal merger is when companies that are competitors and working at the same level of the production chain decide to create a new company together. However, a horizontal merger may happen between two or more companies.
Therefore, these companies tend to offer the same product or service and even may work within the same space. A horizontal merger may be a smart business decision since it helps to address the increased competition in the field.
When it comes to a horizontal merge, it can provide a high revenue and it has a higher chance of success. For a small business that wants to enter Libya, it can be a perfect solution since it gives access to a market while gaining advice from a local business.
What are the Benefits of a Horizontal Merge?
If a company is considering a horizontal merger, it should know that it can obtain the following benefits:
- It provides access to a greater economy in the market
- It reduces operational costs
- Companies may share production facilities and human capital
- Companies can use the same distribution channels
What is a Conglomerate Merger?
Among the types of mergers and acquisitions, we find the conglomerate merger. It is very different from a horizontal and a vertical merge.
This transaction occurs between two companies that are not competitors, therefore, they carry out unrelated business activities. Although it may seem like it is not a good decision, this type of merger or acquisition can be advantageous for both corporations.
Here are the reasons why a conglomerate merger may be perfect for expanding business internationally:
- Increases the market share
- The companies can diversify their services
- It increases the asset
- It diversifies the portfolio of both companies
- Companies can cross-sell products or services
In this regard, the conglomerate merger is classified into two divisions:
- Pure conglomerate merger: in this type of merger, the two companies do not have anything in common concerning products or services at all.
- Mixed conglomerate merger: companies may have certain products related
There have been many conglomerate mergers that we know, but one of the most famous was the one between Disney and Pixar.
On the other hand, this type of merger can be the perfect solution for a company whose product or service is not performing well on the market. In this case, the other products can work as compensation for losses.
How is the Market Extension Merger Carried Out?
Market Extension is one of the types of mergers and acquisitions that can be highly attractive for foreign investors looking to establish their presence in Libya.
In this case, let us say that Company A is operating in a specific market offering a product or a service; and, Company B offers the same product or service, but it operates in a different market.
Both companies may decide to merge since it gives advantages to both of them. In case you are operating in your home country, and you find a company that performs the same activities as you, you may consider a merger.
Among the benefits of international business in a market extension merger are the following:
- It provides an effortless way to enter the Libyan market
- It increases the market share
- Companies can gain a bigger client base
- It provides access to the skills and experience of employees
- Companies achieve a global consolidation
- Revenue synergies
- Technology synergies
- Reduced costs
- Both companies can retain operations in their countries even after the merger occurs
Thus, as the name implies, a market extension is precisely that, an extension of your company to a specific market.
What is a Product Extension Merger?
As with the market extension, the product extension is almost the same, with a slight difference. A product extension merger involves companies that offer similar or related products or services but operate in the same market.
When it comes to types of mergers and acquisitions, product extension is a smart business move for those companies that want to share technology, expertise, and designs.
All of these allow them to group their goods or services, and thus it may potentially lead to higher profits. Moreover, with this type of merger, companies gain access to a bigger audience and customers.
If you are considering a Libya expansion, and you offer a specific product, you need to look for a company that decides to merge with you to boost your operations. On the other hand, you may opt for a product extension acquisition, where you buy the company and take advantageous opportunities to grow in the country.
What is a Reverse Takeover?
The reverse takeover is one of the types of mergers and acquisition. Also known as a “Special Purpose Acquisition Company” (SPAC) is a transaction where a private company merges with a public one.
This is done to go public. Private companies tend to do this to save time and costs regarding the IPO process.
Due to the specific conditions of this type of merger, it is one of the less commonly seen mergers.
On the other hand, a reverse takeover acquisition is when a private company acquires a public company or vice versa. But, it is generally the private company that acquires the public one since the goal is to go public.
How to Define a Congeneric Merger?
The congeneric merger is part of the types of mergers and acquisitions. Also known as a concentric merger, it is a modification of the horizontal merger.
In this case, two or more companies offer different products or services, but they both work for the same industry. Therefore, it is like an overlap between companies whose aim is to create synergies.
To provide an example, let us see Company A, an ice cream manufacturer, and Company B, a wafer manufacturer. Both broadly serve the same market, but they decide to merge and align to create a bigger firm that will obtain better results thanks to its combined abilities.
What are the Benefits of a Congeneric Merger?
In case you are offering a product and you would like to merge with a company to increase your income, a congeneric merging may be suitable since it gives the following benefits:
- Creates a bigger company that offers more value
- It creates cross-selling opportunities
What is an Acqui-hire?
Lastly, one of the common mergers we are witnessing is the acqui-hire. Bigger companies usually acquire another firm that can take control of their talent.
Although it is not so common, it is starting to become a popular merger and acquisition for corporations that have a talent shortage.
An example could be a software company that decides to acquire a company to get outstanding developers and engineers.
How can Interlibya Help you with Mergers and Acquisitions?
Here at Interlibya, we understand how complex an international business expansion can be. For this reason, we want to help companies that want to enter the Libyan market and establish a solid in-country presence.
We provide our outstanding services to companies that want to establish themselves in Libya:
Do you need help with types of mergers and acquisitions? At Interlibya, we aim to make your transition to Libya smooth. Feel free to contact us at +971 43 316 688 or write us your questions at contact@interlibya.com.
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