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CA Final · Advanced Financial Management · Mergers, Acquisitions and Corporate Restructuring

Aarav Pharma Ltd acquires its own raw-material supplier, Bhavna Chemicals Ltd, to secure input supply and reduce procurement costs. How is this combination classified?

This is a vertical merger of the backward integration type. The acquirer buys its own supplier, which operates at an earlier stage of the same production chain, so the combination secures inputs and cuts costs. It is not horizontal because the two firms are not competitors.

  1. AHorizontal merger
  2. BVertical merger (backward integration)Correct
  3. CConglomerate merger
  4. DCongeneric (product extension) merger

Explanation

The acquirer is combining with a firm at an earlier stage of its own production chain, namely its supplier. This is a vertical merger, specifically backward integration. A horizontal merger would require both firms to be competitors in the same line of business.

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