Horizontal merger
M&A / Merger ModelA combination of two companies at the same stage of the same industry, usually direct competitors.
A horizontal merger joins businesses doing the same thing: two banks, two supermarket chains, two cement producers. The logic is scale, and the synergies are overwhelmingly cost synergies, because the two companies genuinely duplicate each other.
Duplicate head offices, overlapping branch networks, two finance functions and two IT stacks all become one, which is why cost synergies in horizontal deals are both the largest and the most credible category.
It is also the type regulators scrutinise hardest, because removing a competitor directly increases concentration. Clearance can require divesting overlapping assets, and a remedy package can materially change the economics of the deal.
Market power is the other prize and the other risk: the same pricing benefit that attracts the acquirer is precisely what a competition authority exists to prevent.
Worked example
Two regional retail banks combine. Both run a head office, a treasury function and overlapping branch networks in three cities.
Cost synergies are large and credible, since the duplication is real and removing it is a decision rather than a hope.
The competition authority examines the three overlapping cities most closely, and clearance may require divesting branches there, which directly reduces the synergies the deal was built on.