What are some driving factors behind mergers and acquisitions? Why do mergers and acquisitions happen?


  • Horizontal: buying businesses that offer similar product/service offerings to cross-sell to existing customers, expand into new markets or geographies, enhance existing market position/share, reduce abilities of competitors, and / or increase diversity of customer base
  • Vertical: buying businesses on different levels of the supply chain in an effort to reduce markup or distribution costs while gaining greater control of more of the value chain
  • Conglomerate: buying businesses that may or may not lead to synergies, but doing so may diversify the company’s exposures to certain risks. A key example is Warren Buffett’s Berkshire Hathaway. These used to be more common but now the dominant theory is that managing a portfolio of businesses is too distracting for a single CEO

Financial sponsors / private equity: buying businesses with significant debt to amplify return for investors and reduce initial equity investment