Horizontal Integration

Horizontal integration involves the combination of two business operating in the same industry and at the same stage of the supply chain.

Potential Advantages of Horizontal Integration

1.Exploit internal economies of scale

2.Cost savings from the rationalization of the business – this often this involves sizeable job losses

3.Potential to secure revenue synergies

4.Wider range of products - (i.e. diversification) – this creates opportunities for economies of scope

5.Reduces competition by removing key rivals – this increases market share and long-run pricing power

6.Buying a existing and well-known brand can be cheaper than organically growing a brand – this can then make the entry barriers higher for potential rivals

Examples of Horizontal Integration

Jan 2016: UK DIY chain Homebase sold to Australian retail giant Wesfarmers for £340m

Dec 2015: Domino's buys largest German pizza chain for $86m

Dec 2015: US chemical giants DuPont and Dow Chemical Co agree to merge in deal worth £86bn + plans to split into three.

Nov 2015: Pfizer's $150bn purchase of of Dublin-based Allergan (the manufacturer of Botox products)

Nov 2015: Marriott agrees a $12bn merger with Sheraton hotels owner to create one of world’s biggest hotel chains

Nov 2015: AB InBev's £71bn bid for SABMiller – one of the world’s biggest brewing mergers in recent years

Nov 2015: AstraZeneca in $2.7bn deal for biotech firm ZS Pharma

2015: Horizontal mergers in the betting industry: Ladbrokes and Gala Coral, Betfair and Paddy Power and GVC and Bwin.party