Between horizontal, vertical, and conglomerate acquisitions, which category is the most effective acquisition strategy?

Horizontal acquisitions tend to be the most effective acquisition strategy.

A horizontal acquisition strategy involves buying businesses that offer similar product / service offerings to cross-sell to existing customers, expand into new markets or geographies, enhance existing market position / share, reduce abilities of competitors and increase market / pricing power, and / or increase the diversity of customer base.

Horizontal acquisitions involve buying companies in identical or adjacent markets in which management already has significant experience in. Because of this, they tend to provide significant strategic benefits and synergies without being outside the expertise of management.

A vertical acquisition strategy involves buying businesses on different levels of the supply chain in an effort to reduce markup or distribution costs while gaining greater control of more of the value chain.
Although a vertical acquisition strategy may provide cost synergies, the businesses which operate in a different part of the value chain are often fundamentally different. For example, retailers, distributors, and manufacturers are very different businesses even if they are in the same industry. As a result, vertical acquisitions are often not as effective as horizontal acquisitions since the companies’ operations are outside the expertise of management.

A conglomerate acquisition strategy involves buying companies that are in different industries, and it’s the least effective as there are often no significant synergies while the targets are often significantly outside the expertise of management.