Mergers and Acquisitions

Vertical merger as a type of M&A

Vitaliy PlekhanovEBM 3-61

Plan 1) Types of M&A and definition of vertical

merger 2) Types of vertical integration. 3) What for? 4) Advantages and disadvantages

The types of M&A are:

Horizontal mergers Vertical mergers Conglomerate M&A

Structure of Financial and Industrial Groups in Russia

60%19%

21%

Vertically integratedHorizontally in-tegratedConglomerates

Vertical mergerA vertical merger occurs when two or more firms, operating at

different levels within an industry's supply chain, join their efforts. As an example, an automobile company may

purchase a tire manufacturer or a glass company.

Types of vertical integration

Raw materials

Intermediate manufacturing

Assembly

Distribution

End User

Raw materials

Intermediate manufacturing

Assembly

Distribution

End User

Raw materials

Intermediate manufacturing

Assembly

Distribution

End User

No integration Backward integration

Forward integration

Development

MinersProcesse

rsTraders Custome

rs

Integrated Resources Producers Traders Customers

Integrated Mining/Processing/Trading

companiesCustomers

Traditional Value Chains (pre 1990)

Resource Driven Value Chains (1990-2010)

Customer Driven Value Chains (post 2010)

What for?Most often the logic behind the merger is to increase synergies created by merging firms that would be more

efficient operating as one. This results in economy of scale and increases profit sharply.

Increased production

Lowered fixed costs and

lower price

More affordable product

Higher market share and revenues

More money to spend on production

Advantages and Disadvantages cutting costs competitive edge reducing dependence on suppliers

o company’s finances get tied upo company orients only on its own

resourceso the balance of capacities is

becoming difficult to keep

Thank you for listening