A horizontal acquisition, also known as a horizontal merger, is a business strategy where one company acquires or merges with another company that operates in the same industry and at the same stage of the production-supply chain.
The primary goal of a horizontal acquisition is typically to create economies of scale, increase market share, gain synergies, reduce competition, or access new markets or products.
For example, if one car manufacturer (like Ford) acquires another car manufacturer (like General Motors), that would be a horizontal acquisition. Both companies operate at the same level of the value chain (car manufacturing), and by combining operations, they might be able to lower costs, increase their market power, eliminate competition, or gain other strategic advantages.
However, it’s important to note that horizontal acquisitions can attract regulatory scrutiny because they can potentially lead to a decrease in competition, which could be harmful to consumers. Regulatory bodies such as the Federal Trade Commission (FTC) in the U.S. or the European Commission in the European Union often review proposed horizontal acquisitions to ensure they comply with antitrust laws.
Example of a Horizontal Acquisition
One of the most famous examples of a horizontal acquisition is when Facebook, a leading social media company, acquired Instagram, another popular social media platform, in 2012.
At the time of the acquisition, Facebook and Instagram were both operating in the social media industry, providing platforms for users to connect and share content with each other. By acquiring Instagram, Facebook was able to eliminate a growing competitor, gain access to a younger demographic, and add a platform with a unique focus on photo and video sharing to its portfolio.
This acquisition allowed Facebook to greatly expand its user base and strengthen its position in the social media market. However, as is often the case with horizontal acquisitions, this deal has also been subject to regulatory scrutiny due to concerns about competition in the social media industry.
Remember, while horizontal acquisitions can provide significant strategic benefits, they can also lead to antitrust issues if they result in too much concentration in a particular industry. This is why such acquisitions are often reviewed by regulatory authorities.