10 Questions
In a horizontal acquisition, which of the following is a key factor for the new company to gain competitive advantage?
Having the same output
A market extension acquisition differs from a horizontal acquisition in that it involves companies...
In different geographic locations
What is the primary purpose of a vertical acquisition?
To integrate different stages of production
Conglomerate acquisitions involve companies...
In unrelated industries
What sets congeneric acquisitions apart from horizontal acquisitions?
Combining companies with different products
A reverse takeover, such as a SPAC acquisition, typically involves...
A public company acquiring a private company
'Creating an undisputed leader in the oil and gas industry' is an example of an advantage resulting from which type of merger?
Horizontal Acquisition
Which type of merger involves companies aiming for consolidation within a wider geography?
Market Extension Acquisition
What distinguishes vertical acquisitions from horizontal acquisitions?
Operating at different stages of production
If two companies from completely unrelated industries merge, what type of acquisition is this most likely an example of?
Conglomerate Acquisition
Study Notes
Types of Mergers and Acquisitions
- Takeover: when one company acquires control over another company, often through purchasing a significant portion of its shares
- Acquisition: the process of one company gaining control over another company through purchasing its assets or shares
Transfer of Assets
- Type D Transfer: the transfer of assets and liabilities between corporations
- Type G Transfer: the distribution of stock or securities in a corporation
Taxable Merger
- A merger that has tax implications for the companies involved, potentially resulting in taxable events for shareholders or the merged entities
Internal and External Reorganization
- Internal Reconstruction: a financial process where a company reorganizes its financial structure without changing its legal status
- External Reconstruction: a company changes its legal structure through external means, such as mergers, acquisitions, or takeovers
Conglomerate Merger
- Example: Pepsico’s acquisitions of companies like Wendy’s, Burger King, and Pizza Hut in the 1970s and 1980s
- A merger between companies with different product lines and services
Congeneric Acquisition
- Also referred to as a ‘concentric acquisition’ or 'product extension merger'
- A twist on the horizontal acquisition, where the two companies involved have different product lines and services, but broadly serve the same market
- Creates synergies between the companies
Reverse Takeover (SPAC)
- A private company acquires a public company with the intention of using it to go public, and avoid the usually costly IPO process
- Can also involve the public company acquiring the private company
Types of Acquisitions
- Horizontal Acquisition: gaining market share through consolidation, where both companies operate in the same space and provide similar products and services
- Market Extension Acquisition: a variation of a horizontal acquisition, where the companies in question are in different geographic locations
- Vertical Acquisition: acquiring a company that provides a different product or service, but within the same industry
- Conglomerate Acquisition: a merger between companies with different product lines and services
- Congeneric Acquisition: a twist on the horizontal acquisition, where the two companies involved have different product lines and services, but broadly serve the same market
- Reverse Takeover (SPAC): a private company acquires a public company with the intention of using it to go public, and avoid the usually costly IPO process
Test your knowledge on corporate takeovers, asset transfers, taxable mergers, and acquisitions with this quiz. Explore the key concepts and implications of these common business transactions.
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