What term describes a merger between companies involved in different stages of production?

A merger between companies involved in different stages of production is called a vertical merger.

The companies are usually connected within the same supply chain rather than competing at the same level. A merger between a manufacturer and a supplier is a backward vertical merger because it moves upstream. A merger between a manufacturer and a distributor or retailer is a forward vertical merger because it moves downstream.

Businesses pursue vertical mergers to secure supplies, reduce transaction costs, coordinate production and distribution, or gain greater control over quality and timing. For example, a furniture maker acquiring a lumber supplier would bring an earlier production stage under common ownership, while a food producer buying a supermarket chain would control a later distribution stage.

This differs from a horizontal merger, which joins direct competitors operating at the same stage of production. A conglomerate merger joins companies in largely unrelated businesses, while a reverse merger is a transaction structure often used to take a private company public. Vertical mergers can create efficiencies, but regulators may investigate whether the combined company could restrict rivals’ access to supplies, customers or essential distribution channels.