Horizontal Integration Examples: 5 Companies That Made It Work

Horizontal integration can allow companies to quickly expand their reach and expertise while reducing costs. Pixar operated in the same animation space as Disney, but its (digitally) animated movies used cutting-edge technology and an innovative vision. The deal is now widely considered to have literally and figuratively reanimated Disney, expanded its market share, and boosted its profits. There is also a risk that regulators will intervene and either ban or constrain the horizontal integration.

Mergers

For this reason, horizontal mergers are heavily scrutinized by regulators, to see if they violate antitrust laws. Horizontal integration is a strategy where a company acquires, mergers or takes over another company in the same industry value chain. Other examples of horizontal integration include HP’s acquisition of Compaq (computers), Pfizer & Wyeth (pharma), Sandoz & Ciba-Geigy (pharma), Roche & Genentech (pharma), and AT&T & T-Mobile (telecoms). In 2009, US food giant Kraft Foods launched a hostile bid for British chocolate maker Cadbury. It was the final acquisition needed by Kraft to allow it to be restructured and split into two companies. The acquisition of Cadbury’s provided scale for its snacks business, especially in emerging markets.

Integrating two like companies in a horizontal acquisition can be challenging if the company cultures are vastly different. The target firm’s employees may find it difficult to adapt to and get acclimated to the new company’s processes and procedures, which means (extensive) training may be required to ensure a smooth examples of horizontal integration transition. Although a horizontal acquisition allows a company to expand production, it doesn’t necessarily mean a pivot for the company. Companies that use Horizontal Integration want to achieve the positioning of the company at the level of territorial expansion. An example of this type of company are various companies within the oil-industry.

Horizontal integration also reduces the level of competition in the market while boosting the revenue of the participants who otherwise may not have prevailed in a fierce market environment independently. Through integration, the parties involved can share institutional knowledge while reducing expenses. The 1998 merger of two major oil companies, Exxon and Mobil, was the biggest in corporate history at the time.

One key advantage of horizontal integration is the increase in market share. Companies that acquire or merge with others in their industry can quickly grow their customer base and increase their sales. This can be especially beneficial in competitive markets where organic growth is slow or expensive. Horizontal integration provides numerous strategic advantages for companies seeking growth and market dominance. Merging with or acquiring competitors allows businesses to leverage combined resources, expertise, and market presence to achieve significant benefits.

Horizontal Integration vs Vertical Integration

1. One of the major problems with horizontal integration is that it can result in a monopoly if done in a way that won’t allow for competition.
2. Horizontal integration benefits companies aiming to consolidate market power within their industry, as seen with significant mergers and acquisitions in the entertainment and tech sectors.
3. This puts production and pricing power in the hands of a few—or even one—players, which can be harmful to consumers.
4. This merger proved extremely beneficial to both companies, even without merging the “houses” that produced the animation.
5. For example, if Company A, a mining business, merges with company B, another mining operation, this is a horizontal integration – they are both in the commodities/raw materials stage of the supply chain.
6. The estimated value of Instagram as of 2018 per Bloomberg’s Intelligence Report.

Horizontal integration is a type of M&A transaction that occurs when similar companies operating in the same industry at the same stage in the supply chain merge. Typically, firms see these deals as consolidation plays by firms to merge entities and gain market share. DealRoom has helped hundreds of organizations with their post-merger integration management. This article draws from the insights gained through our experience with these agreements. Read on to learn more about horizontal integration, how it works, its advantages, disadvantages, and more.

The goal is to expand a company’s footprint within its industry, often by combining with direct competitors. When the two companies merge, they also combine the product base, technology, and services that are available on the market. With more products under one name, the new company can increase its foothold in the market and among consumers. Horizontal integration is a business strategy where one company acquires another business that’s in the same production process in the same industry. This means both companies make the same goods and services and are at the same level of the value chain.

Advantages of horizontal merger

It also gives them the opportunity to create new economies of scale and economies of scope. Companies undergoing horizontal integration may face several challenges, including cultural integration, where merging companies must blend differing corporate cultures, management styles, and operating procedures. There are also logistic and operational challenges in consolidating operations to realize economies of scale.

Contents

If a merger threatens competitors or seems to drastically restrict the market and reduce consumer choices, it could attract the attention of the Federal Trade Commission. When implemented correctly, horizontal integration can increase the market share and power of two companies. Think of a supply chain as a series of steps involved in bringing a product from raw materials to the end consumer. Horizontal integration focuses on consolidating companies operating at the same step within this chain. For instance, two fast-food chains merging would be horizontal integration, as they operate at the same level of preparing and selling food.

The reason for doing so is to create economies of scale, as well as to cross-sell to each other’s customers. A horizontal integration is one of the most common types of merger, since it essentially means that competitors in the same market are combining their operations and assets. Horizontal acquisitions allow companies to eliminate competition, reduce their production costs, boost their profits, and grow their businesses. Other benefits include gaining access to new markets, adopting new product lines and brands, and increasing their market share.

Similarly, horizontal integration can increase one company’ market share and reduce competition, eliminating direct competitors and strengthening the acquiring company’s position against remaining rivals. Through the strategic merger or acquisition of two or more companies within the same industry, organizations achieve economies of scale and reduce production costs, among other advantages. Horizontal integration is a pivotal business strategy for growth, prominently employed across numerous industries. Companies leverage this approach to consolidate their market position by merging with or acquiring another firm operating at the same level in the supply chain.