• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to secondary sidebar
  • Skip to footer

Scale FinanceScale Finance Logo, Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Interim CFO, Part Time CFO Services, Accounting Support, Temporary CFO, Accounting Bookkeeping Services

Charlotte · Raleigh – Durham · Chapel Hill · Triad · Southern Pines · Coastal Carolina
Closing the GAAP to Scale Your Business
The FINACA Logo
919-230-4667
Scale Finance, LLC, Financing, North Myrtle Beach, SC
  • Home
  • Services
    • CFO & Controller Services
    • Capital Raise Services
    • Business Valuations
    • Mergers & Acquisitions
    • Professional Consultations at No Cost
  • Professionals
    • Partners
    • Charlotte Team
    • Raleigh – Durham – Chapel Hill Team
    • Greensboro-Southern Pines
    • Coastal Carolina Team
  • Client Experience
    • Closed Capital Raise Transactions
    • Closed M&A Transactions
    • Client Endorsements
    • Information Technology
    • Healthcare, Biopharma & Medical Device
    • Services, Energy, Industrial
    • Consumer, Retail, Media
    • Real Estate
    • Private Equity Groups
  • Recent News
  • Knowledge Bank
    • Best Practices in Scaling Companies
    • Entrepreneurial Management Skill- Building
    • Financial Management
    • Mergers & Acquisitions
    • Regulatory Developments
    • Venture Capital
  • Contact Us
    • Charlotte
    • Raleigh – Durham – Chapel Hill
    • Triad – Southern Pines
    • Coastal Carolina
  • Joining Our Firm

Which Way to Grow – Horizontal vs. Vertical Mergers


Source: Axial Networks

There are many ways to grow a business. When it comes to mergers and acquisitions (commonly referred to as “inorganic growth”), there are two fundamental types of transactions a business owner might pursue. The types of acquisition targets and the integration strategy is what defines such a transaction as either a vertical or horizontal merger.

While different in nature, both vertical and horizontal mergers can have a meaningful and positive impact on a company looking for a more aggressive style of growth. Depending on what a business owner is looking to achieve, there are considerations and benefits to both.

Vertical Mergers

The goal of a vertical merger is not directly to increase revenue but rather to improve operational inefficiencies and reduce costs, often to the tune of significant competitive advantage. Vertical mergers involve a company buying a supplier, distributor or other part of its supply chain so these various components can be brought under the control of one entity.

For example, a high-end consumer goods brand might acquire the factories responsible for manufacturing Film cores oh, or on the other end of the supply chain, the boutiques or stores that distribute them. In gaining control of the entire supply chain, vertically integrated companies can better control production and price. In fact, this is exactly the practice well known luxury bag designer Louis Vuitton employs, and why his popular handbags never go on sale.

By buying the companies different stages of their operations rely on, businesses not only better control the entire chain, but particularly in the case of suppliers, cut down on the time it to takes to find and negotiate with these different parties. Vertical mergers also help to reduce expenses by ensuring that the means of production and distribution work together harmoniously so there aren’t any surpluses or shortages of the goods being sold.

In addition to the aforementioned benefits, businesses might pursue a vertical merger as a means of securing greater control over their inputs. For example, if a manufacturer uses a component that is provided by either one or few companies, purchasing these suppliers not only ensure continued access to that input, but also undermines the position of competitors.

Horizontal Mergers

The aim of a horizontal merger has a more direct path to the bottom line, helping a company to either increase market share or diversify its product offering and therefore its addressable market. In a horizontal merger, a company purchases another business within the same industry value chain (either a competitive or complementary business). Doing so frequently results in the expansion of current operations instead of the formation of new operations.

You might call the recent acquisition of lynda.com, an online learning and skills development platform, by Linkedin, the largest professional social network, a horizontal merger. Identifying an area where Linkedin could further penetrate it’s customer base – those who might be currently or eventually seeking a new professional opportunity – by offering complementary services in career development led to the pairing of companies whose mission is said to be highly aligned and a tremendous opportunity for Linkedin to expand its overall customer base and potentially even capture more revenue with the additional product offerings unlocked by the lynda.com deal.

An acquirer might decide it’s a better investment to add a company already excelling at additional or complementary products and services rather than invest the time, money and headcount into developing those products or services themselves. Horizontal mergers also represent one way to quickly access new geographical markets if the target company has a customer base or distribution centers in other regions.

Perhaps even more obviously than in a vertical merger, a horizontal merger can significantly increase a company’s competitive position, either by taking out some of the competition through the acquisition or by enabling a company to provide a higher value offering than its existing competition. Companies often pursue such a strategy purely for this reason.

Business owners deciding between these different inorganic strategies must consider their growth objectives. While both vertical and horizontal mergers represent significant benefits, a company must remember that such a transaction is only successful if the new company is integrated strategically and seamlessly. We’ll cover more about integrating an acquired company in a future article, but in the meantime, if you’re looking to elevate your competitive position, reduce costs, bolster inefficiencies and boost the bottom line, carefully considering the goals and benefits of horizontal and vertical mergers is likely time well spent.

About Scale Finance

Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout North Carolina including Charlotte, Raleigh/Durham, Greensboro, Wilmington, and Southern Pines with a team of more than 45 professionals serving more than 120 companies throughout the region.

Primary Sidebar

Knowledge Bank

How to Handle a Bank’s Rejection of Your Loan Request

Accessing University IP – Negotiating Financial & Other Terms

Why VCs Sometimes Push Companies to Burn Cash Too Fast

7 Steps for New Business Owners

Basic Benefits of Starting a Business in North Carolina

Finance & Accounting 101 for New Small Company Owners

Accounting Fraud – Common Causes and How to Stop It

Why 80% of Court Judgments Go Uncollected

7 Steps for Early Stage Fundraising from a VC

Foreign Exchange Management Under Volatile Conditions

Lessons Learned from the EIDL / PPP Trenches

Cash Management Plan – 2020 Economic Crisis

Is Your CFO Any Good? 4 Point Checklist

What Happens When Deals Die

How to Handle a Bank’s Rejection of Your Loan Request

Susceptibility to Accounting Fraud for Medical Businesses

Bankruptcy Relief for Small Companies Coming Soon

New Rules for Overtime Pay take Effect January 2020

The 5 Worst Things You Can Say to a Venture Capitalist

Incentive Stock Options Versus Nonqualified Stock Options

Explore the Knowledge Bank…

Secondary Sidebar

Recent News

SF Client Impact Financial Systems (IFS) Acquired by iPipeline

Scale Finance Assists TrueLearn with Investment by LLR Partners

Scale Finance Assists Textum Weaving with Investment by Quad-C

Scale Finance Closes Debt Financing for Horizon Eye Care

Scale Finance Closes Acquisition of Horsepower Site Services by MCG Civil

Scale Finance Closes Growth Financing for Celerity

Scale Finance Advises on Acquisition of Reliant Transport

Scale Finance Closes $20 Million ABL Financing for TRA

SF Client TruPoint Partners Acquired by Ncontracts

Scale Finance Advises on Debt Financing for Alpha Waste Industries, Inc.

Scale Finance Closes $7M Senior Debt for Travel Resorts of America

Scale Finance Closes Acquisition of Raleigh Metal Recycling by Elite Waste Services

Scale Finance Advises on Debt Financing for Pediatric Advanced Therapy

Scale Finance Closes Growth Equity Investment for Better Car People LLC

Scale Finance Closes Sale of Cayden Security to SCE Group

SF Client EarthKind Secures Growth Investment

Scale Finance Advises AMTdirect on Strategic Growth Investment

More News…

Footer

Ask the CFO

Need a quick answer to a finance/accounting question?

Sending

Media

Scale Finance Managing Director Dave Gilroy interviewed on WSIC Radio (local Fox affiliate)

/wp-content/uploads/2014/02/David-Gilroy-Interview-Local-Biz-Now-2-7-14.mp3

Entrepreneurial Tips

  • Funding Tips from Scale Finance
  • CIE Life Sciences Panel Discussion
  • Why Use Fractional CFO Services

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

FINACA is a nationwide network of independent finance and accounting consulting firms focused on delivering exceptional client service.

Sign Up—Finance Bulletin

Monthly insights into corporate finance for entrepreneurial companies

Sending

Return to top of page

Copyright © 2008–2021 Scale Finance, LLC
Securities and offering services through Charles Towne Securities, LLC. Members FINRA and SIPC.