What is a Horizontal Merger?

A horizontal merger is the combination of two firms in the same industry. Horizontal mergers are more common when the initial growth of an industry is beginning to slow down, since this is the point at which some entities are more likely to fail, and so will be snapped up by their competitors.

Advantages of a Horizontal Merger

A merger between the firms allows them to combine product lines and achieve a higher combined market share within the industry. This approach may lead to economies of scale, especially if the production processes of the organizations are combined. There may also be synergies from the elimination of overlapping facilities and staff. Further, the combined product lines may be more extensive than what one firm could achieve alone, allowing the combined company to sell into additional market niches.

Disadvantages of a Horizontal Merger

There are several disadvantages to a horizontal merger. One is the difficulty of merging any two organizations, which can lead to the loss of key staff and customers. Furthermore, there may be regulatory issues that impede the completion of the merger, and which cause both parties to incur substantial costs. A third concern is that competitors will attempt to lure away key customers, telling them that the combined entity will not be able to service them properly.