What is a horizontal acquisition?
A horizontal acquisition (also called horizontal integration) occurs when one company acquires another that operates in the same industry and at the same stage of production. The acquiring firm increases capacity, market share, and scale while keeping the core business operations similar rather than changing the production model.
How it works
- The acquirer buys the target company and typically absorbs its operations, customers, and products into the acquiring business.
- If the target is publicly traded, its shares are usually bought for cash or exchanged for stock; the target’s corporate identity is often dissolved.
- The combined entity can achieve economies of scale, broaden product lines, enter new geographic markets, or eliminate a competitor.
Common strategic motives:
– Increase market share and customer base
– Expand into new markets or product lines
– Reduce competition and production costs
– Benefit from an established brand or distribution network
Explore More Resources
Advantages
- Increased market share and larger customer base
- Access to new markets and product lines
- Lower per-unit production costs through economies of scale
- Potential revenue and profit growth
- Adoption of successful brands or technologies
Disadvantages
- Heightened regulatory and antitrust scrutiny (risk of creating monopolistic conditions)
- Integration challenges—combining systems, processes, and corporate cultures can be difficult and costly
- Potential loss of agility and flexibility compared with smaller competitors
- Possible layoffs or morale issues during consolidation
Horizontal vs. vertical acquisition
- Horizontal acquisition: combines firms at the same production stage within the same industry (e.g., two rival retailers).
- Vertical acquisition: combines firms at different stages of the same industry’s supply chain (e.g., a manufacturer acquiring a distributor).
- Vertical deals increase control over the production process and supply chain; horizontal deals increase market share and scale.
Types of vertical integration:
– Backward vertical: acquiring suppliers or upstream operations
– Forward vertical: acquiring distributors or downstream operations
Examples
Hypothetical: Two rival energy providers serving the same region—if one buys the other and integrates operations, that is a horizontal acquisition.
Explore More Resources
Notable real-world examples:
– Warner Bros. Discovery — consolidation of WarnerMedia and Discovery to combine content and distribution.
– Disney and 21st Century Fox — merger of two major entertainment producers and content owners.
– Delta and Northwest Airlines — consolidation of two passenger carriers into a single airline network.
– Exxon and Mobil — combination of two large oil companies into ExxonMobil.
FAQs
-
What are the main benefits of a horizontal acquisition?
Greater market share, expanded product lines and customer base, cost reductions, and potential revenue growth. -
How is a merger different from an acquisition?
A merger usually combines two companies of similar size into one agreed entity; an acquisition is when one company purchases and takes control of another (which can be friendly or hostile). -
How does a horizontal acquisition differ from a vertical one?
Horizontal acquisitions combine firms at the same production stage; vertical acquisitions combine firms at different stages of the supply chain to gain production or distribution control.
Conclusion
Horizontal acquisitions are a common growth strategy for companies seeking scale, market dominance, and expanded product offerings. They can deliver significant cost and revenue advantages but carry integration risks and regulatory scrutiny. Successful deals require careful due diligence, planning for cultural integration, and clear regulatory compliance.