Lateral merger

A lateral merger is a merger with another firm of roughly the same size. Businesses enter into lateral mergers for the following reasons:

  • Billing advantages. The combined firm is now in a position to qualify for bids to larger prospective customers.

  • Cost reduction. Combining firms creates an opportunity to eliminate redundant overhead costs.

  • Expertise. The combined firms now have more personnel, which gives it more aggregate expertise than had previously been the case.

There are several issues that may interfere with the completion of a lateral merger, including the following:

  • Control. Since the two merging entities are peers, there is no clear indication of who controls the business.

  • Firm name. Since the firms are of about the same size, there is no dominant entity that enforces the use of its corporate name. Instead, the two parties are more likely to fight over the name to be used.

  • Location. Again, since the firms are of about the same size, it can be difficult to negotiate where the combined entity shall reside.

Related Courses

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