Vertical or horizontal?

This topic contains 15 replies, has 15 voices, and was last updated by  Yoke Chang Tan 19 hours, 43 minutes ago.

Viewing 15 posts - 1 through 15 (of 16 total)
  • Author
    Posts
  • #75449

    Seun Yakub
    Participant

    Are companies better served by making acquisitions of competitors or by extending up and down the industry’s supply chain with vertical acquisitions?

    #83389

    Anjeli Narine
    Participant

    I suppose it would depend on what the acquiring company’s goal is/ what the driver is for the desire to conduct an M&A. The company would be best serve by an acquisition which meets its goals. For e.g. if its goal is eliminating competitors to create a monopoly or become a market leader, then acquiring competitors would best serve its needs, while if its goal is entering new markets or creating synergies in its products line then a vertical acquisition would best serve its needs.

    #85872

    Zach Dogar
    Participant

    Yes I agree with Anjeli. It depends entirely on the strategic goals of the acquirer.

    #85885

    Jenny Ewen
    Participant

    I think you also have to do a thorough market analysis of the competitive forces to know the impacts on the company and the downstream market impacts that could also result that would then come back to either help/hinder the company in the longer run.

    #86742

    Gabriele Frigerio
    Participant

    I think Porter would be a good reference in answering question. It would depend on strategy of buying company.

    #111849

    Riccardo Scaioli
    Participant

    It would depend – as many have already confirmed – on the strategy of the acquirer: of course a company can also decide to apply both strategies together, and acquire “vertical” AND “horizontal”. This would need to be planned, but can be very useful for evaluating in the longer term which of the two strategies has been more beneficial for the acquirer, and base future deals on these data.

    #111914

    Well, I would say in reality I have not seen many examples of vertical transactions that worked really well. Maybe if it comes to securing access to specific resources / suppliers it does (backward integration). But acquiring a customer and starting to compete with your customers could be a dangerous move …

    #112040

    my 2 cent on that is that really depend of the industry and the ressources the company have. Like Dr. Kummer said i don’t think its a good idea to buy your customer or supplier. I think its better to focus on your core business and let people who are good at something do that. Imagine Walmart growing vegetable or making toys…. Like Polycom did in the past buy an enterprise who can feel a hole in the product it’s a good strategy. The only reason to go vertical is for a strategic move like sécurisation of a special ressources or a special technology. All major player outsource a lot these days.

    #112267


    Participant

    As a counterpoint, can someone identify examples of when vertical made sense, and may have been successful? I think it would help ensure professionals take a balanced approach and keep an open mind, depending on the industry dynamics and company situation.

    #114399

    Riccardo Scaioli
    Participant

    More expert professionals can reply to this latest query; I wanted to remark that I agree with Dr. Kummer and Mathieu’s analysis: the decision is based on the industry and the resources the company have, and a vertical transaction can be an advantage in specific situations, such as securing access to a specific resource or technology which will bring benefits to the buyer’s operations. Thanks both for your comments.

    #114690

    Karl Heinz Foertsch
    Participant

    Depends on the competitive position the company is in and in which direction it wants to move. It could make sense to integrate vertically. Disney-Pixar merger can be considered as a vertical merger were both companies benefited. Disney acquired the leading animation studio, which in the past produced movies for Disney. At the same time Pixar benefited from Disney’s vast distribution network for movies. With the merger Pixar could focus its resources on producing outstanding movies rather than spending money and time on developing distribution channels and marketing campaings.

    #114703

    Pensiri Koomsap
    Participant

    It depends on the acquirer’s goal. For example, if the goal is to become a market leader, then a horizontal acquisition can serve the purpose. If the goal is to secure resources like an oil and gas company, an acquisition of small exploration and production companies can be done to secure oil proven and unproven reserve.

    #114779

    Rodney Satterwhite
    Participant

    Depends on what the company’s ultimate strategic plan, current need and mission. Building out key capabilities or growing/securing market positioning.

    #114807

    Similar to some of the other responses I’d say it very much depends but generally speaking I sense an increased risk of doing too many vertical acquisitions as you tend to expand into business segments where you have less know-how and possess fewer key differentiating factors even though you (hopefully) take over a skilled management. But vertical integration is an absolutely valid and sometimes effective tool to expand competitive power.

    #116414

    CHEE KOK SENG
    Participant

    When deciding whether to make a horizontal acquisition or a vertical acquisition it is important to consider what types of advantages you would like to pursue. Do you want to decrease your profits and increase efficiency at what you are doing, or do you want to increase the quantity and expand your reach by acquiring new geographic markets. It may be that one strategy is good for your business now and the other is good for your business later.

Viewing 15 posts - 1 through 15 (of 16 total)

You must be logged in to reply to this topic.

Loading.. Please wait