When a business buys or even launches a competitor product, no one really challenges the logic.

Similarly, it’s not uncommon for businesses to acquire or invest in a distributor. Where questions arise is when a business acquires or builds capability outside of their core function.

Consider the investor backlash over ANZ Bank’s recent $4 billion bid for accounting technology company, MYOB.

Amidst rising interest rates and a slowdown in the home loan sector, the bank’s interest in MYOB was motivated by a desire to grow its business banking and lending arm and deepen engagement with customers by getting access to platform used by millions of small-to-medium-sized businesses.

However, ANZ quickly abandoned the deal in favour of Suncorp Bank, after fierce criticism for pursuing a non-banking asset.

But moving sideways and investing in your supply chain or the supply chain of your target market can make strategic sense, as was the case with AZ NGA acquiring back-office provider Virtual Business Partners.

Horizontal integration is when entities at a similar level in the supply chain come together to achieve synergies and scale. They can be merged or run independently.

Vertical integration, on the other hand, involves entities at different stages of the supply chain. They typically have significantly different products, services and operations.

For decades prior to the Hayne Royal Commission, the industry focused on vertical integration.

Most M&A activity involved institutions and product manufacturers buying administration platforms and dealer groups to secure distribution.

During this period, the industry missed opportunities to invest in advice including specialist technology, paraplanning and back-office administration providers.

Now – in the middle of a global skills shortage, with vertical integration in tatters and the growing value of the advice margin – businesses are clamouring to invest in advisory businesses. The really progressive players are also investing in the supply chain to increase their capacity to serve more Australians.

In recent years, professional advisory firms have emerged as some of the most active investors.

For those with access to capital and the ability to execute deals, a horizontal strategy can offer exposure to a quality standalone asset and preferential access to vital services.