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Horizontal mergers and vertical integration

Why do firms merge? What are the benefits, and who scrutinises the process? Caroline Elliott explains

Many mergers take place each year across the UK. Fewer mergers took place in 2020, which is unsurprising, given the state of flux of economies across the world owing to the Covid-19 pandemic. Nevertheless, considering 2019, mergers and acquisitions in the UK were worth £83.4 billion. This figure includes £53.8 billion of purchases of UK firms by overseas firms (inward mergers), £20.9 billion of purchases of overseas firms by UK firms (outward mergers), and £8.7 billion of domestic mergers.

While the terms ‘mergers’ and ‘acquisitions’ are sometimes used interchangeably, we often think of a merger taking place when a new company is created through the merger of two (or more) firms. An acquisition occurs when one firm buys another, and one firm keeps its identity while the other firm is subsumed, losing its identity.

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Previous

Wage differentials: should the government intervene?

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What does trade theory say about the impact of Brexit?

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