Congeneric Merger

What Is a Congeneric Merger?

Understanding Congeneric Mergers

Types of Mergers

In addition to congeneric mergers, there are several other merger types, such as conglomerate, horizontal, or vertical. While there are many reasons why companies engage in mergers, common factors include the potential growth of the business, product diversification, and cost-effectiveness.

Conglomerate Merger

In contrast to a congeneric merger, where the target and the acquirer are in similar industries, a conglomerate merger occurs between companies that are in no way related. Often, the two companies involved engage in completely different industries with very little overlap in the way they operate their businesses. Conglomerates look to diversify their company by owning multiple unrelated products or businesses. This diversification is part of an overall risk management strategy that may help the company survive market downturns or fluctuations.

Horizontal Merger

A horizontal merger involves two competing companies in the same industry merging to form one larger company. The potential gains in market share are the primary driving force behind horizontal mergers. Companies that merge can also experience cost savings through economies of scale.

Vertical Merger

A vertical merger occurs when a target and an acquirer are involved in the production of a good or delivery of service at different stages of the production process. A company can control more of its supply chain by purchasing the companies that produce its inputs via an upstream vertical merger.

A vertical merger offers a company better control over their production process, which in turn can lead to reduced costs and greater efficiency.

Real World Example of a Congeneric Merger

An example of a congeneric merger is when banking giant Citicorp merged with financial services company Travelers Group in 1998. In a deal valued at $70 billion, the two companies joined forces to create Citigroup Inc. While both companies were in the financial services industry, they had different product lines. Citicorp offered consumers traditional banking services and credit cards. Travelers, on the other hand, was known for its insurance and brokerage services. The congeneric merger between the two allowed Citigroup to become one of the biggest financial services companies in the world.