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Concentric merger: What is it, how it works and some useful examples
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Concentric merger: What is it, how it works and some useful examples

US M&A
Updated: Jan 17, 2025

Companies often seek ways to diversify product offerings, unlock cost synergies, and strengthen their market position. One such way is to pursue a concentric merger. This merger and acquisition (M&A) strategy involves combining the forces of two companies that offer complementary products.

By understanding the specifics of a concentric merger, we can better understand how it creates value and drives market expansion. This article explores the concentric merger concept, its strategic reasoning, the key differences from other merger types, and real-world examples.

What is a concentric merger?

The definition of a concentric merger (also known as a congeneric merger or product extension merger) is when two or more companies from the same or related industry join forces to offer extended products and services. The companies involved are often indirect competitors that sell complementary products to a shared customer base.

This allows the companies to diversify product lines, enhance service offerings, and create cross-selling opportunities. Unlike horizontal mergers involving direct competitors or vertical mergers where companies integrate along the supply chain, concentric mergers improve products and services without overlapping core offerings. Here are the main differences between concentric mergers and other M&A types.

Merger typeWho mergePrimary objectiveExample
ConcentricIndirect competitors in the same or related industries that sell complementary productsExpand product offerings and acquire new technologyA car manufacturer mergers with a motorbike manufacturer
HorizontalDirect competitors in the same industryIncrease market share and realize operational synergiesTwo competitors in a whole foods market merge to reduce competition
VerticalCompanies at different production stages (for example, suppliers and manufacturers)Improve production process, supply chains, and distribution channelsA smartphone manufacturer merges with a chip processor company
ConglomerateCompanies in different industriesRisk reductionA chemical business acquires a renewable energy business
SPAC mergerA special purpose acquisition company (SPAC) is formed to go public and merge with a private company, thereby taking the private company publicTake a private target company public without executing a traditional public offering (IPO)A private biotech company is acquired by a public shell company and goes public through the merger
Also read

What is a vertical merger? Explore its benefits and differences from other M&A types.

Five common reasons for a concentric merger

Business expansion

Concentric mergers allow companies to grow in size, acquire new customers, and increase revenue without competing in the same product category. This is often simpler than achieving business growth by directly improving existing products and services.

For example, a smartwatch company might merge with one that sells wireless earbuds. The merged company could offer a wearable tech ecosystem where customers could use earbuds and smartwatches to listen to music or converse with others. This would enhance the company’s value proposition and market power without directly modifying core products.Conversely, if the smartwatch company merged with one providing fitness tracking software, this would be a vertical merger because the companies are involved in different stages of the production process. A fitness-tracking software developer would be considered a supplier (software supplier) to the acquiring company.

Also read

Explore a vertical merger example and its difference from other types of mergers.

Customer-centric expansion

Concentric mergers allow for improved customer satisfaction through complementary products and services. For example, a company that sells outdoor security cameras might merge with a company that sells video doorbells.

The combined company could diversify its home security offerings, enhancing its value proposition. This would improve customer loyalty because consumers could shop for more products from a single company.

Market adaptation

Concentric mergers can improve the ability of companies to react to shifting consumer demands. This helps companies stay competitive, particularly in dynamic industries. For example, a company that sells high-end running shoes could merge with a company that sells innovative thermal underwear. The combined company would keep up with the competition and meet the consumer demand for innovative fitness apparel.

Market diversification

Complementary products allow companies to diversify revenue streams. For example, a company that produces motorbikes might merge with one that produces protective accessories for motorbikers. The combined company would have an opportunity to cross-sell by offering customers essential safety gear.

This adjacent market entry would allow a combined company to reduce dependence on a single product, representing a reciprocal relationship inside the organization, where the strength of one division bolsters another. However, in the case of a concentric merger, market diversification is not as pronounced as in the case of a conglomerate merger (for more detail visit this resource outlining a conglomerate merger example).

Achieving economies of scale

A concentric merger can deliver a corporate synergy across production, research and development (R&D), marketing, and other streams. For example, a pharmaceutical company that sells anti-inflammatory drugs could merge with a company that sells painkillers.

The combined entity could share lab facilities, consolidate marketing departments, and share warehouses. This would create an opportunity to achieve cost savings and simultaneously increase revenue through selling more treatments for an expanded range of painful conditions.

Three real-world examples of concentric mergers

Kraft Heinz Company

Orchestrated by Berkshire Hathaway and 3G Capital, the 2015 combination of Kraft and Heinz was often viewed as the largest concentric merger. The merged company would have had $28 billion in annual sales and a combined market value of $80 billion.

Both companies operated in the food industry but offered different products. Heinz was famous for its ketchup brand, while Kraft was known for its packaged foods and dietary products, particularly cheese.The merger would benefit from complementary product offerings (over 200 brands, including the iconic Heinz Tomato Ketchup and Kraft Macaroni & Cheese). However, Kraft Heinz was considered a failure due to aggressive cost-cutting measures, its struggle to adapt to healthier food trends, shareholder lawsuits, and layoffs.

Some analysts and former Kraft Heinz employees place much of the blame at the feet of 3G and its use of a highly vaunted ‘zero-based budgeting’ strategy.

The New York Times

DowDuPont

The 2017 merger between Dow Chemical Company and E.I. du Pont de Nemours & Company (DuPont) created a holding entity DowDuPont, with a combined market capitalization of approximately $130 billion. This transformational deal can be considered a concentric merger example, although it was intended to create three independent public chemistry companies in agriculture, material science, and specialty products.

Dow and DuPont were not direct competitors but offered complementary chemical products. Dow specialized in plastics, chemicals, and sealants. Dow AgroSciences, for example, was 80% in the chemistry and crop protection segment. Meanwhile, DuPont specialized in agricultural chemicals and was 80% in the seeds and traits segment.DowDuPont combined the legacy of both companies and initiated a series of splits to create Corteva Agriscience (agriculture), DuPont (specialty products), and Dow Inc. (material science). DuPont later announced a split into more segmented businesses to improve financials and attract specialized investors.

This transaction is a game-changer for our industry and reflects the culmination of a vision we have had for more than a decade to bring together these two powerful innovation and material science leaders

Andrew N. Liveris
Dow’s former chairman and CEO

PepsiCo and Quaker Oats

PepsiCo merged with The Quaker Oats Company in 2001, creating a $25 billion food and beverage company. PepsiCo became the brand name of the combined entity.PepsiCo added Gatorade, Quaker’s leading isotonic brand, to its beverages portfolio. This merger allowed PepsiCo to diversify into the health and wellness food sector. Additionally, PepsiCo gained access to new snack offerings and anticipated considerable synergies in purchasing, manufacturing, and shared distribution processes. This merger was considered largely successful, contributing to PepsiCo’s operating profit growth in the following years.

…bringing our companies together will create literally hundreds of millions of dollars in purchasing, manufacturing and distribution synergies.

Steve Reinemund
Former PepsiCo chairman and CEO

Key considerations before pursuing a concentric merger

It’s crucial to review a few considerations before pursuing concentric mergers:

  • Antitrust concerns

The line between concentric and horizontal mergers is often blurred, particularly between large companies with overlapping offerings. This means concentric mergers may carry anti-competitive risks.

  • Strategic alignment

Developing a well-thought out business case around the merger is crucial for unlocking synergies and avoiding potential internal competition, especially when one offering risks cannibalizing sales of another.

  • Cultural fit

Planning the combined decision-making approaches, communication styles, and workplace policies is crucial for the success of mergers. Research shows companies that effectively manage cultural aspects during post-merger integration are 50% more likely to meet synergy targets than companies that don’t.

  • Long-term vision

The potential to fill the gaps in product offerings, enter new markets, and create synergies must be carefully considered and evaluated during due diligence.

Key takeaways

  • A concentric merger is when two companies in the same market or related industry combine to offer complementary products and services to the same customers. Concentrically merged companies broaden their offerings to meet a wider range of consumer demands.
  • Concentric mergers pursue customer-centric expansion, economics of scale, market diversification, and greater capabilities to adapt to shifting consumer demands and grow without directly competing in the core product categories.
  • Antitrust concerns, cultural fit, strategic alignment, and long-term vision should be carefully evaluated to maximize the chances of a successful merger.
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