Horizontal integration takes place when a company merges or acquires another company that is at the same point of its value chain in the same industry. Typical horizontal integration examples could be a manufacturer acquiring another manufacturer, a distributor merging with another distributor, or a raw materials owner merging with another raw materials owner.
A company that initiates a horizontal integration expands its reach in the stage it is in the value chain in which it operates, instead of reaching into other stages of the value chain. In this article, we will be discussing some real-life examples of horizontal integration companies and how it has contributed to their growth.
Related: Vertical Integration Benefits
Horizontal integration definition
Horizontal integration is the acquisition or merger of businesses that operate at the same level of the value chain in the same industry. This entails a business acquiring or merging with another business that makes or offers similar goods or services as it does. This kind of business strategy is in contrast to the vertical integration strategy, wherein businesses expand the business activities that are upstream or downstream of their value chain.
A business can horizontally integrate by acquiring another business, merging with another business, or internally expanding its operations. Horizontal integration is used by horizontally integrated companies to create economies of scale and cross-sell to each other’s customers. Hence, using this strategy, means competitors in the same market are combining their assets and operations which can cause the creation of a monopoly or oligopoly.
There are several horizontal integration examples of companies that have hit the headlines over the years. A typical horizontal integration example is the acquisition of Starwood by Marriott in 2016. These two companies were two renowned hotel chains all across the globe. However, in 2016, Marriot acquired Starwood and closed on a deal wherein the shareholders of Starwood were given 0.8 shares of the merged entity against every Starwood share they held. After the merger, Marriott had access to over 6,000 properties in about 125 countries.
As seen in the horizontal integration example given, Marriot used this competitive strategy to create economies of scale, increase its market power, and expand its market (or enter new markets). Horizontal integration improves product differentiation and by merging, a horizontal integration company may be able to make more profit than it would have been able to do independently (before an acquisition or merger).
However, when horizontal integration occurs, it is usually at the expense of consumers, especially if it reduces competition. For example, one of the biggest challenges that the Marriot-Starwood deal faced was merging the loyalty programs of the two chains. This was a big challenge because the loyalty programs of the two hotel chains provided different benefits to customers. However, as the merger
was officially complete, the various loyalty programs were consolidated into one during the second half of 2018.
Horizontal integration examples (companies)
- Volkswagen’s 2012 acquisition of Porsche
- Facebook Inc.’s 2012 acquisition of Instagram
- Disney’s 2006 acquisition of Pixar
- Kraft’s 2015 acquisition of Heinz to form Kraft Heinz Corporation (KHC)
- Marriott’s 2016 acquisition of Starwood Hotel & Resorts
- Mittal Steel’s 2006 acquisition of Arcelor SA
- The 1998 merger of Exxon and Mobil to create Exxon-Mobil
- The 2011 merger of Hewlett-Packard and Compaq
- Procter & Gamble’s 2005 acquisition of Gillette
- IBM’s 2019 acquisition of Red Hat
- United Airlines (UAL Corporation)’s 2010 acquisition of Continental Airlines
- The 2022 merger of JetBlue and Spirit Airlines
There are so many merger and acquisition transactions that have occurred between companies in various industries. Once a company acquires or merges with another company and both of them are at the same point of the supply chain in a very similar industry, it is most likely an example of horizontal integration. Listed above are real-life examples of horizontal integration through merger or acquisition. In this session, we will be discussing 5 examples of horizontal integration:
Volkswagen’s acquisition of Porsche, as an example of horizontal integration
One of the real-life examples of horizontal integration is Volkswagen’s merging with Porsche in 2009 and later acquiring it in 2012. Volkswagen and Porsche’s merger began in December 2009, when Volkswagen purchased a 49.9% stake in Porsche for 3.9 billion Euros. Porsche desperately needed this money to settle the debts that it had accumulated in its attempted takeover of Volkswagen. However, in 2012, Porsche was financially weak and Volkswagen bought the remaining 50.1% shares of this sports car manufacturer for 4.46 billion Euros, thus, taking full ownership of the company.
This is one of the well-known horizontal integration examples in the automobile industry because Volkswagen and Porsche both operate within the industry of motor vehicle manufacturing. The horizontal integration used by Volkswagen benefitted it as it added a new car brand to its portfolio, thus, diversifying its portfolio away from family cars. Also, the acquisition was beneficial to both companies as they enjoy increased network coverage and manufacturing synergies.
Facebook’s acquisition of Instagram, as a horizontal integration example
Facebook (now Meta) acquiring Instagram is a typical example of horizontal integration because both companies operate in the same industry and share similar production stages in their photo-sharing services. Facebook and Instagram are operating in the social media industry as they offer their consumers a platform to socialize and communicate with each other. Hence, it was no longer news that these companies were direct competitors.
Facebook saw that instead of Instagram taking its consumers, it was best that it acquired it early on. This company wanted to strengthen its position in the social sharing space and saw the acquisition of Instagram as a huge opportunity to achieve this. Hence, in this regard, Instagram was acquired by Facebook in 2012 for a reported $1 billion but still operates independently as its own social media platform. Facebook acquiring an up-and-coming competitor, like Instagram is a typical example of horizontal integration in the social media industry.
As of 2012, the $1 billion Facebook paid for Instagram was an exorbitant amount for a company with 13 employees. However, in 2018, the estimated value of Instagram was said to be more than $100 billion; which was a return of 100% in just over six years. This means that the horizontal integration used by Facebook was definitely a successful strategy to grow its market share, reduce competition, and gain access to larger and new audiences.
Disney’s acquisition of Pixar, as one of the examples of horizontal integration
Walt Disney’s acquisition of Pixar is one of the notable horizontal integration examples. Walt Disney began in 1923 as an animation studio that expanded into live-action film production, television, and theme parks to target families and children. However, after numerous events of successful ventures, the company began to face creative stagnation and market saturation with its operations in the early 21st century. Experiencing a stage of stagnation, Disney was looking at ways to reinvent itself and resorted to acquiring Pixar in 2006, in a $7.4 billion deal.
The acquired company, Pixar, started off in 1986 and operated in the same animation space as Disney. It produced its first film, Toy Story, in 1995 which began a successful breakthrough into animation movie-making. Pixar’s digitally animated movies used modern technology and an innovative vision. Hence, by acquiring Pixar, Disney was able to merge Pixar’s state-of-the-art production value with its own existing expertise in 2D animation. Due to this horizontal merger, Disney has been able to consistently deliver a series of great works in the movie industry.
This is one of the prominent horizontal integration examples in the entertainment media industry. The horizontal integration used by Disney is widely considered to have literally reanimated it, boosted its profits, expanded its market share, and worked to ward off potential competition for Disney. Hence, the best of both companies came together to become one of the biggest production houses across the globe.
The merger of Exxon and Mobil to create Exxon-Mobil
Exxon-Mobil is one of the most successful horizontal integration companies across the globe. This company originates from a merger between Exxon and Mobil in 1998. The merger between these two standalone major oil companies in the oil and gas industry was said to be the biggest in corporate history at the time, worth over $73 billion.
The prices of oil falling and the global competitive pressures engineered the horizontal integration between Exxon and Mobil. This is one of the well-known horizontal integration examples in the oil and gas sector. This horizontal integration merger combined the first and second largest energy corporations in the United States and became the third most valuable company in the world.
The merger between these two oil giants helped the firm diversify its portfolio, with each company having a foothold in different parts of the world. The horizontal integration used by Exxon enabled it to gain access to Mobil’s gas stations and its product reserves. ExxonMobil, therefore, became one of the biggest oil companies in the world due to its increased efficiency in operations, pooling of resources, and streamlining of procedures.
Mittal Steel’s acquisition of Arcelor SA, as one of the horizontal integration examples
Arcelor-Mittal, the world’s largest steel producer is an example of a horizontal integration company. This company was formed after two steel giants, Arcelor SA, and Mittal Steel Company, merged. This is one of the notable horizontal integration examples of a merger which was a 26.5 billion euros takeover by Mittal Steel.
Mittal Steel started the bid for a merger by offering cash to the shareholders of Arcelor. Initially, Arcelor’s board did not agree to the merger but after several discussions, Mittal improved its bid. Hence, looking at the proposed synergies that the new entity would offer, Mittal paid 40.37 euros a share to the shareholders of Arcelor and bought them out in 2006.
After the merger, Lakshmi Niwas Mittal became the President of Arcelor-Mittal and owned the majority stake. The horizontal integration of Arcelor-Mittal resulted in creating a massive global manufacturer that produced 10% of the world’s total steel, becoming the world’s largest steel producer.
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