Definition
A horizontal acquisition occurs when one company acquires another company that operates in the same industry and often produces similar products or services. The purpose of this type of acquisition is to expand the market share, achieve economies of scale, reduce competition, and increase operational capabilities, all while retaining the core business functions of both companies.
Horizontal Acquisition vs Vertical Acquisition
| Feature | Horizontal Acquisition | Vertical Acquisition |
|---|---|---|
| Definition | Acquisition of a similar company in the same industry | Acquisition of a company at a different stage of production |
| Impact on Operations | Basic operations remain the same; focus on expansion | Changes structure and processes; aims at full control |
| Goal | Increase market share, reduce competition | Improve supply chain efficiency |
| Example | Soft drink company A buys another soft drink company B | Automobile manufacturer acquires a tire manufacturing firm |
| Level of Integration | Similar operations and products | Different stages of production (upstream or downstream) |
Examples of Horizontal Acquisitions
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Disney Acquires Pixar: In 2006, Disney acquired Pixar, a company that was already creating animated films, thus enhancing Disney’s existing portfolio in animated movie production.
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Facebook Acquires Instagram: In 2012, Facebook, already a social media giant, acquired Instagram, expanding its influence in the photo-sharing space without altering its core business model.
Related Terms
- Vertical Acquisition: The acquisition of a company at different levels of the supply chain to enhance efficiency and control over resources.
- Mergers: The combination of two companies to form a new entity, which may include horizontal or vertical mergers.
- Market Share: A company’s sales volume as a percentage of total sales volume in a given market.
Formula and Diagrams
Here’s a simple chart that can help illustrate the concept of horizontal vs vertical acquisitions using Mermaid format:
graph TD;
A[Acquisition Types] --> B[Horizontal Acquisition]
A --> C[Vertical Acquisition]
B --> D{Similar Companies?}
C --> E{Different Stages?}
D -->|Yes| F[Expand Operations]
D -->|No| G[Different Model]
E -->|Yes| H[Control Supply Chain]
E -->|No| I[Not Applicable]
Quirky Quotes and Fun Facts
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Quip: “Acquiring another company is like dating: You might see potential, but sometimes, they’ve just got too much baggage!”
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Fun Fact: Did you know that the largest horizontal acquisition in history was the merger of AOL and Time Warner in 2000? It was worth a staggering $165 billion. We hope they had a good poultice for that bruise!
Frequently Asked Questions
Q1: Why do companies pursue horizontal acquisitions?
A1: Companies pursue horizontal acquisitions primarily to increase their market share, reduce competition, and benefit from economies of scale.
Q2: What are the risks associated with horizontal acquisitions?
A2: Risks may include antitrust issues, ineffective integration, and the potential mismatch in corporate cultures.
Q3: How does a horizontal acquisition affect employees?
A3: Employees may face redundancies but can also benefit from shared resources, increased stability, and career opportunities in a larger organization.
Online Resources for Further Study
- Investopedia: Horizontal Acquisition
- Harvard Business Review Articles on Mergers
- Books:
- Mergers & Acquisitions For Dummies by Bill Snow
- M&A: A Practical Guide to Doing the Deal by Marco A. D’Angelo
Test Your Knowledge: Horizontal Acquisition Quiz
Thank you for exploring the world of horizontal acquisitions with us! Remember, acquisitions can be as smooth as butter or as complicated as knitting spaghetti. Keep learning and stay financially savvy!
