Last Updated on October 6, 2025
Mergers and acquisitions happen when two companies join together, either by merging into one business or when one company buys another. The goal is usually to grow, cut costs, or gain more market share.
There are different types of mergers and acquisition deals, and each one has a unique purpose. Some involve companies in the same industry, while others combine firms from different markets or even unrelated industries.
This guide will walk you through 8 key types of mergers and acquisitions, what they mean, why companies use them, and real-world examples that show how each one works.
The 8 Types of Mergers and Acquisitions
1. Horizontal Merger
A horizontal merger happens when two companies in the same industry come together. These companies usually sell similar products or services and often serve the same market. The goal is to reduce direct competition, increase market power, and take advantage of cost synergies like shared resources and similar distribution channels.
This is one of the most common types of mergers, especially when one company wants to grow fast by acquiring another business in its space.
Example:
When two online retail giants selling the same types of products merge, it’s a horizontal merger. Another example is when a cable company merges with another cable provider in the same region.
Why it happens:
- To gain more market share
- To lower costs by combining business operations
- To reduce competition in the same industry
2. Vertical Acquisition
A vertical acquisition (or vertical merger) happens when one company buys another that operates at a different stage of the supply chain. The companies involved are usually in the same industry, but they don’t offer the same product. Instead, they handle different parts of getting a product or service to the customer.
For example, a company that makes phones may buy a business that produces phone parts, or a retail company may acquire a delivery service.
Why companies do it:
- To control more of the business operations
- To reduce costs and delays in production or delivery
- To improve profits by cutting out middle steps
- To secure long-term access to key suppliers or distribution channels
- To improve pricing control and negotiation power across the value chain
Example:
If an online retail giant acquires a shipping company to handle its own deliveries, that’s a vertical acquisition. Another common case is a food brand buying the farms or factories that supply its ingredients.
3. Market Extension Merger
A market extension merger happens when two companies from the same industry join forces to reach different markets. These businesses often sell similar products or services but don’t operate in the same geographic area or serve the same type of customers.
The idea is to take a working business model and expand it into new places without starting from scratch. One company merges with or acquires another to grow its customer base and boost its market share.
Why companies do it:
- To enter new regions or countries
- To serve new customer groups
- To grow faster than building from the ground up
- To build brand presence in a new market using an established local company
Example:
If a U.S.-based insurance company acquires a similar firm in Europe, that’s a market extension merger. They offer the same services, but to different markets.
4. Conglomerate Acquisition
A conglomerate acquisition happens when one company buys another in a completely different industry. The two companies involved don’t compete, don’t sell similar products, and often serve unrelated customer bases. This is common when a business wants to diversify or reduce risk by spreading its interests across multiple industries.
There are two kinds:
- A pure conglomerate merger joins companies with nothing in common.
- A mixed conglomerate includes businesses that might share a small connection, like similar customer types or sales channels.
Why companies do it:
- To reduce risk by not depending on just one industry
- To grow in new directions
- To balance out revenue during market downturns
- To access new customer segments without changing core products
- To take advantage of tax benefits through diversification
- To build a holding company with multiple independent business units
Example:
When a holding company like Berkshire Hathaway buys businesses in energy, insurance, and retail, that’s a conglomerate acquisition. These businesses don’t overlap, but they create a stronger combined company.
5. Asset Purchase
An asset purchase is when one company buys specific assets from a target company, instead of buying the whole business. These assets can include product lines, intellectual property, equipment, real estate, or inventory. This type of deal is common when the acquiring company wants the value without taking on the target’s debts or legal risks.
In many cases, the deal requires approval from the target company’s shareholders, especially if the assets are core to the business.
Why companies do it:
- To avoid taking on liabilities from the target firm
- To buy only what’s needed, no extra costs or obligations
- To pick up valuable assets from a bankrupt company or a downsizing competitor
- To acquire intellectual property or product lines without inheriting legal risks
- To quickly enter a market or product category without a full acquisition deal
Example:
If a larger company acquires only the software division or patents of a smaller tech company, that’s an asset purchase. It’s often used in interest acquisition strategies where full ownership isn’t needed.
6. Tender Offer
A tender offer happens when an acquiring company offers to buy shares of a target company directly from its shareholders, usually at a higher purchase price than the current market price. This offer goes straight to the investors, not the target company’s board.
Tender offers are often used in hostile takeovers, especially when the target company’s leadership doesn’t agree with the deal.
Why companies do it:
- To gain controlling interest in a company without needing board approval
- To complete a deal quickly by appealing directly to shareholders
- To bypass rejection from company leadership
- To take advantage of undervalued stock and acquire the company at a discount
- To apply pressure on the target company’s board by rallying shareholder support
Example:
If a large firm wants to acquire a public company and its board says no, the acquiring company may offer to buy stock directly from the shareholders. If enough investors agree, the acquisition moves forward, even without board support.
7. Reverse Merger
A reverse merger happens when a private company merges with a public shell company to become publicly traded, without going through the usual IPO process. The public shell is often a business entity that still exists legally but has no legitimate business operations.
Instead of raising funds through a traditional IPO, the private company becomes public by merging with or being acquired by the shell company. This method is faster, cheaper, and often used by startups or smaller firms.
Why companies do it:
- To go public quickly and avoid the long IPO process
- To access public markets for raising capital
- To avoid underwriting and regulatory delays
- To gain legitimacy and visibility as a publicly traded company without full IPO scrutiny
Example:
A private tech startup merges with a public shell company that no longer operates but is still listed. After the deal, the private company becomes the new public entity.
8. Acquihire
An acquihire is when a larger company acquires a smaller company mainly to hire its employees, not to gain its products, services, or customers. This type of deal focuses on talent rather than business operations or assets.
The target business might shut down after the deal, while its employees join the acquiring company to work on other product lines or projects.
Why companies do it:
- To bring in skilled teams quickly
- To avoid the long process of hiring and training new staff
- To gain access to a target company’s engineering, design, or management talent
- To acquire specialized talent that would be hard to recruit individually
- To strengthen internal capabilities for a specific project or product roadmap
Example:
A tech company might acquihire a startup just to bring on its software developers, even if the startup’s product isn’t a fit for their business strategy.
| Type | Definition | Main Goal | Companies Involved | Example |
| Horizontal Merger | Two companies in the same industry and market combine | Increase market share and reduce competition | Competitors in the same market | Marriott merging with Starwood Hotels |
| Vertical Acquisition | One company buys another at a different stage of the supply chain | Control operations and improve cost efficiency | Manufacturer + supplier/distributor | Amazon acquiring its delivery/logistics partner |
| Market Extension Merger | Two companies in the same industry but different markets merge | Enter new geographic or customer markets | Similar businesses in different regions | U.S. bank acquiring a Canadian bank |
| Conglomerate Acquisition | Merger between companies in unrelated industries | Diversify and spread risk | Firms from unrelated sectors | Berkshire Hathaway acquiring varied businesses |
| Asset Purchase | One company buys selected assets from another | Gain valuable assets without full acquisition | Buyer and asset-selling company | Buying patents or inventory from a bankrupt firm |
| Tender Offer | Buyer offers to purchase shares directly from the target company’s shareholders | Gain control without board approval | Acquirer + shareholders of the target firm | Hostile takeover bid with premium share price |
| Reverse Merger | A private company merges with a public shell company | Go public without an IPO | Private company + public shell | Startup merging with inactive public firm |
| Acquihire | Acquisition focused on hiring the target company’s employees | Acquire skilled talent | Large company + smaller, often startup company | Tech giant acquiring startup for its dev team |
Related Concepts and Classifications
While the 8 types of mergers and acquisitions cover the most common deal structures, it’s also helpful to understand a few related terms and classifications. These offer more detail on how companies involved approach the deal, the outcome, and the way the combined company is formed.
Mergers vs. Consolidations
A merger is when one company absorbs another, and the acquiring company continues as the main legal entity. The target firm may keep its name and operations, but control shifts to the acquiring company.
A consolidation happens when two or more companies join to form a completely new entity. Neither original company remains, they create a new brand, structure, and leadership team.
Friendly vs. Hostile Mergers
In a friendly merger, both companies agree to the deal and work together to combine their operations smoothly. These deals are usually negotiated and approved by both management teams and boards.
Why Companies Pursue M&A
The reasons behind M&A deals can vary, but common motivations include:
- Increasing market share
- Gaining control of a supply chain
- Acquiring intellectual property
- Entering different markets
- Gaining tax benefits
- Eliminating direct competition
- Boosting value through cost synergies or access to estimated future cash flows
To evaluate a deal, business leaders often rely on methods like discounted cash flow analysis, comparable company analysis, and comparable transaction analysis to determine a fair purchase price.
Frequently Asked Questions
What are the 5 types of mergers?
The five types of mergers are horizontal, vertical, market extension, product extension, and conglomerate. Each type helps companies grow, enter new markets, or diversify operations.
What are the four types of mergers and acquisitions?
The four main types of mergers and acquisitions are horizontal, vertical, market extension, and conglomerate. These deal types involve companies combining for reasons like expanding market share, improving the supply chain, or entering different markets.
What are different types of M&A?
There are eight common types of M&A: horizontal acquisition, vertical acquisition, market extension merger, conglomerate acquisition, asset purchase, tender offer, reverse merger, and acquihire. Each serves a different strategic purpose based on the companies involved.
What are the three major types of mergers?
The three major types are horizontal, vertical, and conglomerate mergers. These are used to reduce competition, streamline operations, or expand into unrelated industries.
Conclusion
There are 8 key types of mergers and acquisition deals, each with a different goal. Some help companies grow in the same market, others expand into different markets, improve the supply chain, or gain talent and assets.
Knowing how each type works helps business leaders choose the right strategy, whether it’s a horizontal merger, vertical acquisition, market extension, or asset purchase. Every deal shapes the future of the acquiring company, the target company, and the new business entity that follows.
Patrick Schnepf is the Senior Vice President of Global Sales at SmartRoom, where he leads strategic initiatives to enhance secure file-sharing and collaboration solutions for M&A transactions. With a career spanning over two decades in sales and business development within the technology sector, Patrick has been instrumental in driving SmartRoom’s global revenue growth and expanding its market presence. He is a growth-oriented leader who excels at building go-to-market strategies that accelerate adoption, deepen customer relationships, and business impact.
