CS Professional · Corporate Restructuring, Valuation and Insolvency · Planning and Strategy
Arjun Engineering Ltd, a manufacturer of auto components, acquires Meru Castings Ltd, its own supplier of cast parts, to secure supply and reduce costs. How is this combination best classified?
It is a vertical combination, specifically backward integration. The acquirer buys its own supplier, so the two firms sit at different stages of the same value chain, unlike a horizontal deal between competitors or a conglomerate deal between unrelated businesses.
- AHorizontal combination
- BConglomerate combination
- CVertical combinationCorrect
- DReverse merger
Explanation
The acquirer and target operate at different stages of the same supply chain, with the target supplying the acquirer. That is a vertical combination (backward integration). A horizontal one needs competitors, and a conglomerate one needs unrelated businesses.
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