Vertical Unrelated Acquisition.
Vertical unrelated acquisition is undertaken with limited possibilities for transferring or sharing core competencies. In some cases, however, vertical unrelated acquisitions can result in vertical chain/horizontal scope economies, vertical chain innovations, and combinations of chain economies and innovations.
Managing vertically unrelated businesses can be associated with two major disadvantages:
- the more vertical businesses the firm owns, the higher the costs of bureaucracy, and perhaps coordination, are likely to be;
- a firm that commits itself to buying all of its needs internally may pay higher costs by failing to seek competitive bids from outside suppliers.
Formerly, the term "merger" applied to the consolidation of two companies about equal in size, whereas "acquisition" implied a larger firm taking over a smaller one. Since this distinctions is no longer consistently observed, I use the words interchangeably.