Different M&A varieties depend on the motivation for the merger. We’ll look at the main ones here:

Horizontal Merger

Where two companies that directly compete join up. Disney and Fox fused to spawn one monster film studio. The benefit is reduced competition and increased negotiating heft in the marketplace.

Vertical Merger

Where companies along a supply chain join up. For example, when cable TV company Time Warner merged with AT&T, a provider of the wires that pipe Time Warner’s content to viewers. Were McDonald’s to buy a farming company, that would also be a vertical merger, aiming to create efficiencies and hurt competitors.

Concentric Merger

Or “congeneric merger” – where companies selling to the same audience of customers join up. Like when dieting service Weight Watchers gobbled up Hot5, a maker of fitness apps.

Conglomerate Merger

Some entities are “holding companies”, which don’t have a core business outside of owning other firms. Warren Buffett’s Berkshire Hathaway has bought a stable of businesses like Dairy Queen and Duracell as investments. He keeps them all relatively independent from each other.

An acquisition can also help expansion into another country (as with Amazon buying Arab retail site Souq.com), or snap up talented employees in an “acquihire” (like Google or Facebook hoovering up tech startups).

So companies merge to reap rewards?

That’s the aim. Strengthened market position and economies of scale come easy when two companies swell into one bigger entity. The combined firm might be able to squeeze a better deal from suppliers. Then there’s the potential to cut costs by eliminating functions replicated across the two businesses. Disney laid off thousands of Fox employees doing similar jobs to folks already at the House of Mouse, hoping to run Fox’s operations more cheaply. These benefits – often referred to as synergies – can also be more obscure: like Disney dragging Fox’s X-Men characters into The Avengers films to assemble bumper audiences. 🎬

More cynically, buying a foreign company to shift your headquarters there can lower your tax bill, something called “inversion.” Burger King flipped itself to Canada when it gobbled up smaller chain Tim Horton’s in a whopper case of (legal) tax avoidance.

However, it’s very possible that these benefits will never materialize. Accountancy firm KPMG says 83% of mergers fail to deliver shareholder returns. Too often, the price for the target is too high; integrating two companies is rarely easy; and the fabled synergies turn out to be another CEO fantasy.

Despite that, M&A is a fever and the only prescription is more deals. A colossal deal can define a CEO, and that ego trip will drive the world until nothing beside remains. So how exactly does a monarch expand his or her fief? 🏰