Certified Financial Management Specialist Practice Exam

What characterizes a vertical merger?

1. Two companies in direct competition

2. A customer and a supplier merging

3. Two companies selling related products

4. Companies operating in differing markets

The correct answer is: A customer and a supplier merging

A vertical merger is characterized by the combination of two companies that operate at different stages of the production process for a specific product. This typically involves a relationship where one company is a supplier and the other is a customer. In this scenario, merging allows for more control over the supply chain, potentially leading to cost reductions and increased efficiencies. The integration of a customer and a supplier can enhance coordination, improve inventory management, and streamline operations, ultimately benefiting the companies involved as they work closely together in the production and distribution process. The other options describe different types of mergers. Direct competition refers to a horizontal merger, where two companies selling similar products combine forces. Companies selling related products typically engage in a conglomerate merger, where they operate in related but distinct markets without overlapping product lines. Lastly, companies operating in differing markets could refer to conglomerate mergers as well, rather than vertical mergers, which specifically involve the customer-supplier dynamic. Therefore, the accurate characterization of a vertical merger is captured by the merging of a customer and a supplier.