# Horizontal Acquisition: What It Is, How It Works, and Example

![Horizontal Acquisition](https://www.investopedia.com/thmb/uCycJTQiz0OuI-36zkkTPSy_Pig=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/horizontal-acquisition_final-642201c0f3774150a42f51b08ee7d6e5.png)

*— Investopedia / Jessica Olah*

## What Is a Horizontal Acquisition?

A horizontal acquisition occurs when one company acquires another company in the same [industry](https://www.investopedia.com/terms/i/industry.asp) and works at the same production stage. The new entity may be well-positioned because of its increased market share or scalability than the standalone companies combined to form it. Horizontal acquisitions expand the capacity of the [acquirer](https://www.investopedia.com/terms/a/acquirer.asp), but the basic business operations remain the same, unlike an acquisition that creates a wholly different company.

### Key Takeaways

*   A horizontal acquisition occurs when one company takes over or acquires a similar company in the same industry.
*   The basic business operations expand rather than change after a horizontal acquisition.
*   The two companies in a horizontal acquisition often produce similar products and have similar production schedules.
*   Unlike a horizontal acquisition, a vertical acquisition involves companies in the same industry with completely different production cycles.

## Understanding Horizontal Acquisitions

[Mergers and acquisitions (M&A)](https://www.investopedia.com/terms/m/mergersandacquisitions.asp) are a common part of the business landscape. They involve combining businesses and/or their assets into a single unit. Mergers involve the [consolidation](https://www.investopedia.com/terms/c/consolidation.asp) of two or more companies into one entity while acquisitions occur when one company purchases another and takes it over.

A horizontal [acquisition](https://www.investopedia.com/terms/a/acquisition.asp), which may also be referred to as [horizontal integration](https://www.investopedia.com/ask/answers/051415/what-are-advantages-and-disadvantages-horizontal-integration.asp), is one type of M&A strategy. This business transaction takes place between two or more companies within the same industry. Companies may consider executing a horizontal acquisition for different reasons, including (but not limited to):

*   Reducing competition
*   [Diversifying](https://www.investopedia.com/investing/importance-diversification/) their product offerings
*   Creating new products
*   Expanding their businesses
*   Tapping into new markets
*   Gaining [market share](https://www.investopedia.com/terms/m/marketshare.asp)

In a horizontal acquisition, both the acquirer and the target firm (the one being acquired) tend to produce the same goods or services and are at the same point in the production cycle. This is so the new entity can experience more production capacity and boost its profits and [revenue](https://www.investopedia.com/terms/r/revenue.asp). If the companies were at different stages of the production cycle, the equipment may not overlap and be as valuable to the acquiring entity.

Once a horizontal acquisition is complete, the [target firm's](https://www.investopedia.com/terms/t/targetfirm.asp) identity is usually dissolved and it becomes part of the acquirer. The business operations don't change after the deal is complete. Shares of the target firm are dissolved if it is public and its [shareholders](https://www.investopedia.com/terms/s/shareholder.asp) may receive cash or stock in the acquiring company.  

> **Important**
>
> Although a horizontal acquisition allows a company to expand production, it doesn't necessarily mean a pivot for the company.

## Advantages and Disadvantages of Horizontal Acquisitions

Horizontal acquisitions can be very beneficial to the companies involved. But, there are inherent drawbacks to this kind of business transaction. We've listed some of the most common pros and cons of this strategy below.

### Advantages

Going through a horizontal acquisition requires a great deal of time and research. This is to ensure the [transaction](https://www.investopedia.com/terms/t/transaction-deposit.asp) makes sense and is beneficial to all of the parties involved.

When it is successful, a horizontal acquisition provides the following benefits:

*   Increased market share and larger customer base
*   Access to new markets and product lines
*   A reduction in competition and [production costs](https://www.investopedia.com/terms/p/production-cost.asp)
*   The adoption of a recognized brand (if the target has one)
*   A boost in [revenue](https://www.investopedia.com/terms/r/revenue.asp) and profits  
    

### Disadvantages

Merging two similar companies may make sense on paper, but it isn't always easy to execute. [Antitrust laws](https://www.investopedia.com/terms/a/antitrust.asp) prevent the reduction of competition—notably, the establishment of [monopolies](https://www.investopedia.com/terms/m/monopoly.asp)—in the marketplace. The power to produce goods and services lies in the hands of a few companies when there are few competitors, which allows them to price their offerings even higher. This is seen as harmful to consumers who have little choice.

Integrating two like companies in a horizontal acquisition can be challenging if the [company cultures](https://www.investopedia.com/terms/c/corporate-culture.asp) are vastly different. The target firm's employees may find it difficult to adapt to and get acclimated to the new company's processes and procedures, which means (extensive) training may be required to ensure a smooth transition.

The consolidation of two companies may lead to a reduction in flexibility. That's because the new, larger company may not be able to react or adapt to [market](https://www.investopedia.com/terms/m/market.asp) swings, consumer tastes, and economic conditions as quickly as a smaller company would.  

Pros

*   Increased market share and customer base
    
*   New markets and production lines
    
*   Eliminating competition and reducing production costs
    
*   Adoption of successful brands
    
*   Boost in revenue and profits
    

Cons

*   Increased regulatory scrutiny
    
*   Integration challenges
    
*   Reduced flexibility
    

## Horizontal Acquisition vs. Vertical Acquisition

There are different types of acquisitions, some of which focus on obtaining equipment or control of operations at another point in the production cycle. A [vertical acquisition](https://www.investopedia.com/ask/answers/051315/what-difference-between-horizontal-integration-and-vertical-integration.asp) is another kind of business transaction that results in the consolidation of two or more companies.

In a vertical acquisition, the companies involved are in the same industry, such as food production or energy. But unlike a horizontal acquisition, they are at different stages of the production cycle. The reasons for vertical acquisitions (also known as [vertical integration](https://www.investopedia.com/terms/v/verticalintegration.asp)) are the same as those for horizontal acquisitions. The acquiring company in a vertical acquisition, though, gets more control over the entire production process.

There are two types of vertical acquisitions:

*   A [backward vertical acquisition](https://www.investopedia.com/terms/b/backwardintegration.asp) allows the acquiring company to obtain equipment that is either further upstream from the end client
*   A [forward vertical acquisition](https://www.investopedia.com/terms/f/forwardintegration.asp) allows the acquirer to access equipment that is further downstream from the end client

An energy company that purchases a company that manages and maintains city power grids is an example of a vertical acquisition. That's because the energy producer buys a company responsible for bringing its product closer to the end consumer.  

## Examples of Horizontal Acquisitions

Here's a hypothetical example to show how horizontal acquisitions work. Suppose two rival energy companies deliver services to consumers in the same area. After some time, the two enter into negotiations to merge where Company A will purchase Company B. This is a horizontal acquisition because it is within the same industry and production schedule.

### Real-World Examples

The following are examples of horizontal acquisitions that have taken place between some of the world's most recognizable names:

*   AT&T and Discovery announced a deal to merge Discovery with WarnerMedia. The deal, which closed in 2022, created a new media and entertainment company called Warner Bros. Discovery ([WBD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBD)), which trades on the Nasdaq.  
    
*   In 2019, Disney's ([DIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIS)) merger with 21st Century Fox went into effect. Both companies produce and provide entertainment and streaming services to consumers.
*   Northwest Airlines merged with Delta ([DAL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DAL)) in 2008, combining their services into a single unit.
*   Exxon and Mobil, two of the world's largest energy companies merged to form ExxonMobil ([XOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XOM)) in 1998. The transaction was completed the following year.

## What Are the Benefits of a Horizontal Acquisition?

Horizontal acquisitions allow companies to eliminate competition, reduce their production costs, boost their profits, and grow their businesses. Other benefits include gaining access to new markets, adopting new product lines and brands, and increasing their market share.

## What's the Difference Between a Merger and an Acquisition?

Mergers and acquisitions are two types of business transactions that involve the consolidation of two or more companies. A merger combines two companies together—usually those of similar size and operations. This type of transaction is usually friendly, where all parties involved agree to the consolidation. An acquisition, on the other hand, occurs when one company purchases another. This transaction can be friendly or hostile. In the latter case, the target firm (the one being purchased) doesn't agree to the transaction and tries to prevent being taken over.

## How Does a Horizontal Acquisition Differ From a Vertical Acquisition?

Horizontal and vertical acquisitions both occur between companies that operate in the same industry. But there is a subtle difference between the two. A horizontal acquisition happens between two companies that are in the same production stage while a vertical acquisition takes place between two companies that are in different stages of the production process. It allows the acquiring company to access equipment that is either closer to or further away from the end client.

## The Bottom Line

Mergers and acquisitions come in different forms, including horizontal acquisitions. Horizontal acquisitions take place between similar companies that are in the same stage of production. They allow companies to gain market share, expand their product lines, and eliminate the competition. But these deals can often take time to go through because regulators don't want producers to have so much power that harms consumers.

> **Article Sources**
>
> 1.  AT&T. "[Discovery and AT&T Close WarnerMedia Transaction](https://about.att.com/story/2022/close-warnermedia-transaction.html)."
>     
> 2.  The Walt Disney Company. "[Disney’s Acquisition of 21st Century Fox Will Bring an Unprecedented Collection of Content and Talent to Consumers Around the World](https://thewaltdisneycompany.com/disneys-acquisition-of-21st-century-fox-will-bring-an-unprecedented-collection-of-content-and-talent-to-consumers-around-the-world/)."
>     
> 3.  Delta. "[Delta and Northwest Merge, Creating Premier Global Airline](https://ir.delta.com/news/news-details/2008/Delta-and-Northwest-Merge-Creating-Premier-Global-Airline/default.aspx)."
>     
> 4.  ExxonMobil. "[FORM 8-K: CURRENT REPORT](https://investor.exxonmobil.com/sec-filings/all-sec-filings/content/0000950103-99-001045/0000950103-99-001045.pdf)."