Horizontal vs Vertical Acquisition: Which Is More Profitable?
When it comes to expanding a business, there are two main ways: horizontal and vertical acquisitions. A horizontal acquisition is when a company acquires another company in the same industry and at the same stage of production, while a vertical acquisition is when a company acquires another company in the same industry but at a different stage of production.
One of the main benefits of a horizontal acquisition is that it can allow a company to increase its market share and decrease competition. By acquiring a competitor, a company can eliminate one of its rivals, making room for increased profits. A horizontal acquisition also allows a company to diversify its product or service offerings, which can lead to increased revenue streams and customer base.
Horizontal vs Vertical Acquisition
On the other hand, a vertical acquisition can provide a company with greater control over its supply chain and production process. By acquiring a company that is in a different stage of production, a company can ensure a steady supply of goods or services. This type of acquisition can also result in cost savings, as the company can streamline its operations by eliminating the need for third-party suppliers.
Overall, whether a company chooses a horizontal or a vertical acquisition depends on its specific goals and objectives. While a horizontal acquisition might be better for expanding market share and diversifying offerings, a vertical acquisition could be the right choice for increased supply chain control and cost savings.
When it comes to mergers and acquisitions, there are two primary types: horizontal and vertical. In this section, we will discuss horizontal acquisition.
Horizontal acquisition occurs when a company acquires a competitor in the same industry or line of business. The goal of a horizontal acquisition is to boost market share, eliminate competition, and reduce costs through economies of scale. This type of acquisition can also help a company diversify its product or service offerings.
Horizontal vs Vertical Acquisition: Which One Is the Better Business Growth Strategy?
Horizontal acquisitions can take many forms, from friendly mergers to hostile takeovers. Let’s look at a few examples:
1. Facebook’s acquisition of Instagram in 2012: Facebook, a social media giant, acquired Instagram, a photo-sharing app that was gaining popularity among younger users. This horizontal acquisition helped Facebook expand its offerings and eliminate competition.
2. Marriott’s acquisition of Starwood Hotels & Resorts in 2016: Marriott, a hospitality company, acquired Starwood, a competitor in the hotel industry. This horizontal acquisition allowed Marriott to expand its portfolio of hotels and resorts, and benefit from economies of scale.
3. Google’s acquisition of YouTube in 2006: Google, a search engine company, acquired YouTube, a video-sharing platform. This horizontal acquisition helped Google diversify its offerings and dominate the online video market.
Overall, horizontal acquisitions can be beneficial for companies looking to boost market share, eliminate competition, and diversify their offerings. However, they can also be risky and require careful consideration and planning. When comparing horizontal vs vertical acquisition, it is essential to understand the unique advantages and disadvantages of each type.
Vertical Acquisition: Definition and Examples
Vertical acquisition is a business strategy where a company expands its operations by acquiring a business that operates in the same industry but at a different stage of the production process. With vertical acquisition, companies aim to increase their operational efficiency and gain better control over the supply chain.
A vertical acquisition can be either upstream, where a company acquires a supplier, or downstream, where it acquires a customer. For example, a car manufacturer could acquire a tire manufacturer, which is an upstream acquisition. Alternatively, the car manufacturer could acquire a car dealership, which is a downstream acquisition.
Vertical Acquisition Offers Several Advantages to Companies
– Greater control over the supply chain: By acquiring companies that are part of the supply chain, companies can better control the quality, cost, and availability of their inputs and outputs.
– Cost savings: By consolidating production processes and eliminating intermediaries, companies can reduce costs and increase efficiency.
– Increased market power: Vertical integration can help companies gain market power by reducing competition and increasing barriers to entry.
Vertical Acquisition Also Has Some Drawbacks
– Increased risk: Acquiring companies at different stages of the supply chain can expose companies to new risks that they may not be familiar with.
– Loss of flexibility: Vertical integration can make it difficult for companies to adapt to changes in the market or to take advantage of new opportunities.
– Cultural differences and integration issues: Acquiring companies that operate at different stages of the supply chain can lead to cultural differences that can make integration challenging.
Vertical Acquisition Include
– In 2017, Amazon acquired Whole Foods, a chain of organic food supermarkets. The acquisition allowed Amazon to expand its presence in the grocery retail industry and gain a better understanding of the supply chain.
– In 2016, Tesla acquired SolarCity, a solar panel manufacturer. The acquisition allowed Tesla to integrate solar panels and battery storage systems into its electric vehicles and offer more comprehensive energy solutions to its customers.
– In 2013, Ford acquired Livio, a software company that specialises in linking smartphones and cars. The acquisition allowed Ford to better control the supply chain of its SYNC technology, which connects drivers’ phones to the car’s entertainment and navigation systems.
Overall, vertical acquisition can be a powerful tool for companies looking to expand their operations and gain greater control over their supply chain. However, it also comes with risks and challenges that should be carefully considered before pursuing this strategy.
When it comes to mergers and acquisitions, two distinct types stand out: horizontal acquisition and vertical acquisition. Each plays a unique and crucial role in business growth, but there are significant differences between them.
Horizontal acquisition is when a company takes over or merges with another company within the same industry or market sector. The goal is to expand the company’s market share, eliminate competition, and increase efficiency by consolidating operations. In contrast, vertical acquisition is when a company acquires or merges with another company involved in a different stage of the supply chain, such as a supplier or distributor, in order to gain a strategic advantage and optimise the supply chain.
What are The Key Differences Between Horizontal and Vertical Acquisition
– Market Position: With horizontal acquisition, companies aim to expand their market share, eliminate competition, and increase efficiency. In contrast, vertical acquisition aims to improve supply chain efficiency and gain a strategic advantage.
– Cost: Horizontal acquisition can be costly, with companies paying a premium to eliminate competition, while vertical acquisition can be less expensive because the companies are not in direct competition with each other.
– Integration: Horizontal acquisition involves integrating two companies with potentially similar operations, which can lead to challenges and complexities. Vertical acquisition requires integrating companies involved in different stages of the supply chain, which can be easier to integrate and streamline.
– Risk: Horizontal acquisition has a higher risk of failure due to the potential difficulties in merging two companies with similar operations. On the other hand, vertical acquisition has a lower risk of failure as companies involved in different aspects of the supply chain have less overlap and potential for conflict.
In conclusion, both horizontal and vertical acquisition play a vital role in a company’s growth strategy, but they differ significantly in terms of goals, costs, integration, and risks. By understanding the unique differences between the two, companies can determine which approach is best suited to their needs and make informed decisions about acquisition strategies.