what is business combination

what is business combination business combination is a type of transaction in which businesses aim to grow in size using one organization acquiring the other organization and therefore taking control of the business activities and the employees of the other organization in simple terms it is a consolidation of two or more businesses to achieve a common goal by eliminating competition examples number one horizontal combination this type of consolidation of two or more organizations operating in the same line of business this combination results in a reduction of competition and larger market capitalization market capitalization market capitalization is the market value of a company's outstanding shares it is computed as the product of the total number of outstanding shares and the price of each share dot read more example a combination of two major sugar manufacturers sugar bell and crystal sweeteners operating in the same line of business is an apt example of a horizontal business combination this would result in the termination of the competition number two vertical combination the vertical combination is a combination of different stages of the same business for example many businesses operate independent businesses at different stages this is also known as sequence combination or process combination it combines different departments under one single control point the key objective is to reduce the per unit cost of production example mountain mist a packaged water manufacturer combines with a pet bottle manufacturer beige plasto this type of combination will bring two different processes under single management in addition the inclusion of the bottle manufacturing unit under the same management will reduce per unit cost number three lateral combination this type of business combination is the combination of two businesses that deal in a different line of business however they are connected in some way or another 3a convergent a convergent combination is the combination of different business units say suppliers of raw materials raw materials raw materials inventory is the cost of products in the inventory of the company which has not been used for finished products and work in progress inventory raw material inventory is part of inventory cost which is reported under current assets on the balance sheet dot read more to a major firm in this type of combination the larger firm benefits from supplying raw materials and its inventory under its control example supplier a deals in printer ink papers and folders and supplier b deals in the same business pressfit is a leading printing press supplier a and b with press fit will be a concurrent combination 3b divergent a divergent combination is the combination of major firms that operate in related businesses that use the major firms products as raw material example an oil refinery organization gives its crude oil to its dependent organizations as raw materials the downstream industries use this for creating petroleum and machinery oils the combination of such a business is called divergent lateral combination 3c diagonal diagonal combination refers to a combination of the manufacturing companies with a service related business this helps businesses provide service for the products that have been sold and creates a sense of customer satisfaction and trust since the customer can expect after sales service at the hands of the organization itself example service centers for various mobile phone manufacturers are not owned by the manufacturer but authorized by them in this way the service center can cater to the customer's needs by delivering original spare parts and providing a service that is authentic and reliable 3d mixed mixed combinations are also termed circular combinations these unrelated businesses combine to form a new business called a mixed combination the new business form will have insights from the management of both the organizations which will help create an organizational and functional structure that creates the most efficient way to operate the business example an insurance company combined with a shipping and cargo company to form a new business is an example of a mixed combination you are free to use this image on your website templates etc please provide us with an attribution link how to provide attribution article linked to be hyperlinked advantages managing the business becomes efficient since decisions can be made based on a holistic view of the key areas of business the major advantage of a business combination is the economies of scale the economies of scale economies of scale are the cost advantage of business achieves
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