It isn’t always easy to examples of horizontal integration maintain a corporation after this sort of structural change, but a properly planned strategy may prove successful. Following are several horizontal integration examples today and the companies that have made the process work for them. This strategic move also provided cost savings to services companies by leveraging shared resources and infrastructure, positioning Facebook to dominate the industry further.
Post-merger, Marriott has access to over 6,000 properties in about 125 countries. The biggest challenge this deal faced was merging the loyalty programs of the two chains because of the different benefits each program provides. The merger was officially complete, consolidating the various loyalty programs into one during the second half of 2018. However, this company has created itself a name on the European market and has the relevant expertise to conduct many kind of projects.
This approach aims to increase one company’s market power and control over the supply chain by uniting two companies into a single entity. 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. A horizontal monopoly involves horizontal integration to the point that the combined businesses entirely or nearly completely control a specific step in the supply chain.
- With 86% focusing on increasing revenue and profitability, horizontal integration can be a compelling route for CFOs and executive teams to consider, but it can present challenges and attract regulatory attention.
- 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.
- HubSpot’s acquisition of The Hustle in 2021 allowed the marketing and CRM platform to expand its content marketing offerings while remaining focused on serving businesses within the same industry.
- The biggest challenge this deal faced was merging the loyalty programs of the two chains because of the different benefits each program provides.
What are the Risks of Horizontal Integration Merger Strategy?
Horizontal integration is a type of merger where competitors operating in the same market combine their operations to benefit from economies of scale. The risks include potential antitrust violations if the merger significantly reduces competition. Cultural clashes between merging entities can hamper operations and employee morale. There’s also the chance that expected synergies may not materialize, leading to a decrease in value rather than growth.
This horizontal integration merger combined the first and second largest energy corporations in the United States and became the third most valuable company in the world. Facebook saw that instead of Instagram taking its consumers, it was best that it acquired it early on. This company wanted to strengthen its position in the social sharing space and saw the acquisition of Instagram as a huge opportunity to achieve this. Hence, in this regard, Instagram was acquired by Facebook in 2012 for a reported $1 billion but still operates independently as its own social media platform.
As you set your sights on the horizon of business possibilities, it’s clear that horizontal integration will continue to shape and define future markets. The relentless pace of globalization, accompanied by technological advancements, suggests that companies will increasingly seek opportunities to join forces to withstand the pressures of a competitive global market. By doing so, they stand to benefit from shared technology, expanded customer bases, and robust financial positioning. Noteworthy is the horizontal integration of companies like Kraft Foods and Heinz, which created an enormous food industry powerhouse through strategic consolidation. P&G was able to capitalize on Gillette’s strong male grooming products while bolstering their own extensive lineup of hygiene offerings, from razors to toothpaste.
Business examples of Horizontal Integration
There is a risk that anticipated synergies, such as cost savings and revenue enhancements, may not materialize as expected. When HP acquired Autonomy Corporation in 2011 for $11.1 billion, HP later wrote down $8.8 billion of the acquisition value, citing significant accounting irregularities and overestimated synergies that did not materialize. Compaq was an American information technology company founded in 1982 that developed, sold, and supported computers and related products and services. Hewlett-Packard provided a wide variety of hardware components, as well as software and related services to consumers and businesses.
One key adjustment involves recording acquired assets and liabilities at fair value, which can substantially alter the balance sheet and net income. In an acquisition, one company fully buys another, integrating its assets, operations, and workforce to enhance market position and capabilities. These are three of the five competitive forces that shape every industry, as identified in Porter’s Five Forces model.
- For instance, finance and HR might see a lot of redundancies as many of the tasks can be condensed and made more efficient.
- It is a strategy used to increase the power of individual players in the industry or as a competitive tactic to destroy small competitors in the industry.
- For example, a manufacturer may acquire a retail company so that the manufacturer can not only control the process of making the good but also selling the good as well.
- For mid-sized businesses, implementing a horizontal integration strategy opens doors to new resources and strengthens market position.
The 2018 merger between CVS Health and Aetna illustrates this, with CVS recognizing Aetna’s assets and liabilities at fair value. Substantial goodwill reflected anticipated synergies from combining CVS’s pharmacy network with Aetna’s insurance capabilities. Compliance with antitrust regulations necessitated disclosures about the competitive landscape and expected benefits.
Mittal Steel’s acquisition of Arcelor SA, as one of the horizontal integration examples
Leveraged acquisitions to finance horizontal integration can increase financial leverage and risk exposure. Horizontal integration can provide access to new geographic or demographic markets. By acquiring a company with an established presence in a new market, the integrating company can expand its reach and customer base more effectively.
AJIO Business Model
By combining, they are able to benefit from the economies of scale and the efficiencies it presents. We know ExxonMobil as one company today, but that entity originates from the 1998 merger between Exxon and Mobil – two separate companies in the oil and gas industry. At the time, the merger was said to be worth over $73 billion – making it the third most valuable company in the world.
Whenever a firm wants to expand its growth through the strategy of horizontal integration, it prefers to acquire the same firms in a similar industry into which it is operating. Horizontal Integration strategy is considered as a process or a strategy in which a company seeks to increase the production of its products or services at a similar part or area of the supply chain. A different type of merger is vertical integration, which is when companies merge that are in different positions in the value chain. For example, a car manufacturer could buy a producer of car tires, in order to secure this input to its production line.
For instance, taking the leap into market diversification, a manufacturer may merge with a retail company, ensuring they’re not just producers, but also premier marketplace contenders. By merging with or acquiring a company that operates in your domain, your products and services can instantly find new audiences. This could be by integrating the acquired retail company’s prowess into your business model, enabling you to bypass layers of distributors and retailers to directly reach consumers.
When Business Giants Join Forces
Under this deal, the Red Hat is to function as a unit inside the Cloud and cognitive software segment of IBM. A Horizontal integration strategy is adopted by companies to fortify their space in the industry. An organization that uses this strategy generally acquires or mergers other organization that is indulged in a similar stage of production. Integration costs and potential debt are the main financial risks for the businesses involved in the acquisition.
Horizontal integration often leads to higher market concentration, where fewer companies control a greater market share. While this can boost the integrated company’s price control and bargaining power, it may limit consumer options and impact market diversity. A good example of horizontal integration is the 2020 merger between Fiserv and First Data. This merger allowed Fiserve, a financial technology provider, to enhance its payment processing capabilities and broaden its customer base by integrating First Data’s expertise in merchant payment solutions. Horizontal integration can be achieved in a few ways, each with its own advantages and challenges.
The social media industry has thousands of applications and posting capabilities, but Instagram was a true competitor with Facebook for younger markets and for ad space. In the merger, Facebook strengthened its social media position and removed the competition from Instagram. Similar to the structure of Disney and Pixar, Instagram still operates independently with its own teams, but it is owned by Facebook.
