A vertical merger is a name given to the vertical integration and it is known as the merger between the manufacturer and the supplier. The major aspect of this kind of merger is that it is a merger between two companies that are manufacturing or dealing in different types of goods and services. It is different from the horizontal merger that is a merger between two companies that produce same type of products.
Working of the Vertical Merger
Vertical Merger exists between the two companies that can be manufacture or the supplier however they deal in different goods or different services. Although these goods and services are different but they are the part of the value chain of a similar end product. The major objective of the merger is to reduce the production cost and to increase the margin of profit related to the sales of goods.
Example of Vertical Merger
There can be a number of examples from the real world that can explain the concept of vertical merger. For example let’s assume that a company ABC manufactures shoes where as another company ABC manufactures leather. Now ABC is the company that supplies leather to ABC for manufacturing shoes. At some point of their business both the companies realize that they are dealing in the same final or end product so if they merge their companies they will cut their cost and increase the margin of profit. This merger is called a vertical merger as both companies are dealing in products that result into a single final product
Importance of Vertical Merger
With the help of vertical mergers companies can control the entire production cycle by purchasing the suppliers and making them as a part of their company to increase profit and reduce cost of production.
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