5 types of merger and acquisition strategies

Learn about the different merger and acquisition strategies that are appropriate for your business plans and how lawyers fit into the whole process
5 types of merger and acquisition strategies

Mergers and acquisitions (M&A) in Canada can be used to attain a lot of corporate objectives. As such, there are different merger and acquisition strategies where lawyers for M&As can help companies to ensure that these objectives are met, and that the whole process is compliant with the law.

How can lawyers help with mergers and acquisitions?

Lawyers for mergers and acquisitions can help companies – either the acquiring company or the target company – in the various legal and regulatory considerations during the process.

The job of an M&A lawyer may include any of the following:

  • lead the corporate team formed to focus on completing the mergers and acquisitions process
  • interpret laws and regulations for M&A compliance
  • take an active role in conducting due diligence
  • prepare and interpret contracts and agreements to facilitate the M&A transaction
  • help in litigation or court actions that may arise

As such, it is important to hire an M&A lawyer at the earliest opportunity. The lawyer will guide parties on their different obligations during the process. That lawyer can also advise on the mergers and acquisitions strategy that applies for these parties.

To seek advice on mergers and acquisitions, speak to a lawyer in your province. If your company is based in Toronto, consult with a Lexpert-ranked mergers and acquisitions lawyer in Ontario.

What are the different merger and acquisition strategies?

There are different merger and acquisition strategies that companies can employ, depending on the acquiring company’s objectives (and the target company’s too).

Although there is no fixed merger and acquisition strategy for all, a business will have its own strategy depending on its goals, available resources, and the risks that it’s willing to take.

Purpose of merger and acquisition

A company’s merger and acquisition strategy will first depend on its purpose. It could be:

  • to add new products or services
  • to acquire new skills or cheaper production technologies
  • to improve performance or to scale up operations
  • to remove any excess capacity as it scales up
  • to open new market opportunities for its products or services
  • to help potential competitors grow under its radar

The purpose for engaging in an M&A may be identified at the early stages of the process. Before a company offers itself to the public as an acquiring company, it would have to come up with a strategic plan and do market research by engaging all of its stakeholders and its key employees.

Merger and acquisition strategies

Once the company’s purpose is clear, it can now plan for the merger and acquisition strategy that is in line with that purpose.

In Canada, some of the common merger and acquisition strategies are:

  1. Vertical
  2. Horizontal
  3. Conglomerate
  4. Market Extension
  5. Product Extension

Vertical M&A

A vertical M&A is a merger and acquisition strategy where the acquiring company and the target company are in the different stages of the supply chain of a similar industry. Here, the M&A will result in an integrated supply chain for a similar product or service.

In a vertical M&A, the target company may either be the acquiring company’s:

  • Upstream company: those that produce raw materials, components, or any other inputs used in the production process of the acquiring company’s products or services; or
  • Downstream company: those that link the acquiring company’s products closer to the consumers (e.g., wholesalers, distributors, or retailers)

An example of a vertical M&A is the 2002 merger of eBay and PayPal. This M&A transaction simplified the purchase process of eBay’s consumers, since PayPal made it easier for them to do online payments when they buy from eBay.

Horizontal M&A

One of the commonly used merger and acquisition strategies is horizontal M&As.

In a horizontal M&A, both the acquiring company and the target company operate in the same industry or produce the same products or services. This usually occurs between two competitors who agree to the M&A transaction because of its benefits.

Horizontal M&A can be done in different ways:

  • Joint ventures: where two or more competing companies agrees to collaborate on a particular goal, such as the production of a specific product or service
  • Partnerships: where two or more individuals form a company or an entity to carry out an agreed long-term business

Some examples of horizontal M&As are:

  • Air Canada’s acquisition of Canadian Airlines in 2001
  • Merger of Reuters Group PLC and Thomson Corporation in 2007
  • Facebook’s acquisition of Instagram in 2012
  • Merger of Husky Energy and Cenovus Energy in 2020

A recent case of a horizontal merger in Canada is the Rogers-Shaw merger. Read more about this case here:

This groundbreaking merger is on our list of the all-time biggest mergers and acquisitions in Canada.

Conglomerate M&A

Conglomerate M&A, on the other hand, is the opposite of horizontal M&A.

In a conglomerate M&A, two companies merge to form a single entity, even if their business activities are entirely unrelated to each other. An example of a conglomerate M&A is the Amazon-Whole Foods merger in 2017.

This type of merger and acquisition strategy has two types:

  • pure conglomerate: the two companies are entirely unrelated and do not overlap in any way
  • mixed conglomerate: the two companies’ products may overlap in some way, but merge for the purpose of product and market extensions

Market Extension

Market extension is another merger and acquisition strategy. Here, two companies that produce similar products or services in different markets merge to extend each other’s market reach.

One example is the 2002 acquisition of Eagle Bancshares, Inc., including its subsidiary the Tucker Federal Bank, by the Royal Bank of Canada and RBC Centura Banks, Inc.

Product Extension

Product extension M&As are the merger of two companies that offer distinct products or services but are sold in the same market or target similar customers.

This is meant to diversify these companies’ line of products or services, since both of their products are related in some way.

An example is the 2002 acquisition of Mobilink Telecom Inc. by Broadcom, combining the handset product designs of Mobilink with the Bluetooth products of Broadcom.

Interested in hearing more about different merger and acquisition strategies? Speak with one of the best Lexpert-ranked mergers and acquisitions lawyers in Canada.