DEFINITION of 'Horizontal Acquisition'

A horizontal acquisition is when one company acquires another company that is in the same industry and works at the same production stage. The new combined entity may be in a better competitive position due to increased market share or scalability than the standalone companies that were combined to form it. Horizontal acquisitions expand the capacity of the acquirer, but the basic business operations remain the same.

BREAKING DOWN 'Horizontal Acquisition'

The companies involved in a horizontal acquisition generally produce the same goods or services and produce them at the same point in the production cycle. This is so the new entity can experience more production capacity and take advantage of an increased market share. If the companies were at different stages of the production cycle, the equipment may not overlap and be as useful to the acquiring entity. There are different types of acquisitions, some of which do focus on obtaining equipment or control of operations at a different point in the production cycle. In a vertical acquisition, the two companies would be in the same industry but at different stages of the production cycle. This allows the acquiring company to obtain equipment that is either further upstream from the end client (backward vertical integration), or further downstream towards the end client (forward vertical integration). This gives the acquiring company more control over production.

Example of a Horizontal Acquisition

For example, an energy producer purchases a rival that also produces energy. This is a horizontal acquisition. Next, the same energy producer purchases a company that manages and maintains city power grids. This is an example of a forward vertical integration because the energy producer has purchased a company that is responsible for bringing its product closer to the end consumer.

RELATED TERMS
  1. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  2. Horizontal Analysis

    A procedure in fundamental analysis in which an analyst compares ...
  3. Horizontal Line

    A line that appears to proceed from left to right, or parallel ...
  4. Vertical Market

    A vertical market is a group of companies that serve each other's ...
  5. Vertical Merger

    A merger between two companies producing different goods or services ...
  6. Accretive Acquisition

    An acquisition that will increase the acquiring company's earnings ...
Related Articles
  1. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  2. Investing

    The 4 Stages of the Investor Emotion Cycle

    Investors have an emotional counterpart to each of the four stages of the market cycle.
  3. Investing

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.
  4. Investing

    Understanding Market and Full Risk Cycles

    Investor need to understand the four stages the markets tend to experience.
  5. Small Business

    Why Successful Business Owners Sell Out

    Learn the motives that drive companies into the arms of an acquirer.
  6. Investing

    Analyzing an Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  7. Investing

    Foreign Direct Investment

    Foreign Direct Investment is a form of cross-border investment.
  8. Investing

    Understanding Production Efficiency

    Production efficiency is the point at which an economy cannot increase output of a good or service without lowering the production of another product.
RELATED FAQS
  1. Can Internet companies be vertically integrated?

    Find out how online businesses are beginning to take advantage of vertical integration for many of the same reasons as traditional ... Read Answer >>
  2. When is outsourcing preferable to vertical integration?

    Deciding between outsourcing and vertical integration can be challenging. Understand the benefits of each to make the most ... Read Answer >>
  3. Why do companies merge with or acquire other companies?

    The reasons for company mergers and acquisitions include synergy, diversification, growth, improving competition, and supply ... Read Answer >>
  4. What are the most famous instances of backward integration?

    Learn more about backward integration in the supply chain and see how two famous examples, Carnegie Steel and Apple, used ... Read Answer >>
Hot Definitions
  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  2. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  3. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  4. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
  5. Watchlist

    A watchlist is list of securities being monitored for potential trading or investing opportunities.
  6. Hedge Fund

    A hedge fund is an aggressively managed portfolio of investments that uses leveraged, long, short and derivative positions.
Trading Center