A lateral merger refers to the strategic consolidation of two companies that operate in the same or complementary industries but are not direct competitors. Unlike horizontal mergers—where companies seek greater market share by combining with rivals—lateral mergers are often driven by goals such as diversification, operational synergy, and cost efficiency.
This guide explores the strategic rationale, real-world examples, challenges, and benefits of lateral mergers, offering a comprehensive, expert-level overview.
Understanding Lateral Mergers
Lateral mergers take place between companies that share industry proximity or operational overlap but serve different market segments or product categories. These companies are typically in adjacent positions within the value chain or industry but are not vying for the same customers.
Purpose and Strategy:
- Expand product or service offerings
- Leverage shared technologies or resources
- Reduce costs through integrated operations
- Enhance resilience through diversification
Why Companies Pursue Lateral Mergers
1. Diversification of Product Lines
Lateral mergers allow companies to enter new market segments by absorbing a partner’s complementary offerings. This strategy spreads risk and reduces overreliance on a single product or customer base.
Example: A smartphone manufacturer merging with a tablet or wearable tech company expands its ecosystem without entering direct competition.
2. Achieving Economies of Scale
Shared infrastructure, suppliers, logistics, and administrative functions can significantly reduce operational costs.
According to industry research, post-merger companies that align operations—especially within similar industries—can achieve cost savings of up to 15–25% within the first two years.
3. Exploiting Operational Synergies
Firms may share supply chains, R&D resources, or distribution channels. By merging, they streamline operations and enhance innovation.
R&D Integration Example: Combined research labs may reduce duplication and fast-track product development cycles.
Real-World Example of a Lateral Merger
A notable case is the Dell–EMC merger (2016). Dell, primarily a computer hardware company, merged with EMC, a data storage and cloud services provider. Though not direct competitors, both operated within the tech infrastructure ecosystem.
The result:
- Broader product suite (hardware + data solutions)
- Cross-selling opportunities across enterprise clients
- Integrated cloud and on-premise storage options
This merger allowed Dell to diversify offerings while entering higher-margin sectors.
Challenges and Risks of Lateral Mergers
While the benefits are compelling, companies must navigate several strategic and operational hurdles:
- Cultural Integration: Differing management philosophies can cause internal friction.
- Synergy Overestimation: Projected efficiencies may not materialize, impacting ROI.
- Regulatory Complexity: Cross-industry consolidation can trigger antitrust or compliance reviews.
According to Harvard Business Review, up to 70% of mergers fail to deliver intended value, often due to post-merger integration issues—regardless of strategic alignment.
Debunking Common Misconceptions
- 1) “Lateral mergers only occur between competitors.“
→ False. These mergers involve industry-adjacent firms, not direct rivals. - 2) “All mergers result in job cuts.“
→ Not always. While redundancies can occur, lateral mergers often create new roles in product integration, marketing, and support.
Lateral vs. Horizontal vs. Vertical Mergers
| Type | Definition | Example |
|---|---|---|
| Lateral | Same/complementary industry, non-competing | Dell + EMC |
| Horizontal | Direct competitors merge | T-Mobile + Sprint |
| Vertical | Different stages of supply chain integrate | Amazon + Whole Foods |
Understanding these distinctions helps stakeholders evaluate merger intent and long-term strategic fit.
Post-Merger Considerations
Following a lateral merger, companies typically focus on:
- Brand integration (cross-promotion, unified messaging)
- System harmonization (ERP, CRM, cybersecurity alignment)
- Human capital restructuring (skill overlap, new leadership roles)
Best Practice: Companies that invest in dedicated integration teams often realize synergies more quickly and improve the chances of post-merger success.
Key Takeaways
- A lateral merger joins two companies from similar or related industries that are not direct competitors.
- Strategic goals include diversification, cost optimization, and resource synergy.
- Real-world examples like Dell–EMC highlight the value of complementary strengths.
- Success depends on integration planning, realistic synergy forecasting, and cultural alignment.
- Lateral mergers are distinct from vertical and horizontal mergers in intent and operational scope.
Further Reading: