Diagonal Acquisitions: Conglomerate

Forming a Conglomerate  as an acquisition strategy is an interested method for expanding a business. While this method is probably less common, it also has it pros and cons. Forming a conglomerate is the method of acquiring businesses that do not participate in the same type of business as the acquiring company. For example, a product manufacturing company acquires a financial services company.

While this approach does not have the directly related benefits that vertical or horizontal acquisitions do, it does have some indirectly related benefits. Lets reflect back on the example of the product manufacture that acquires a financial services company, while the financial provider is not going to directly expand the customer base, and it is not going to increase production efficiency, it does have the capacity to manage finances and give solid financial consulting advise. In essence, rather than outsourcing its needs, it simply hires its own subsidiary to perform the work. This can also provide a sort of balance to both companies if one industry begins to struggle.

One former deal that took place about a year ago was with a large construction company that had successfully pursued the conglomerate strategy. The parent company owned approximately eleven different companies that consisted of concert carriers, excavations contractors, water services, blasting services, financial services, dirt hauling services, and crane operations. While each company had its own operations and project allowing them to work independently, the collection of each of the companies allowed the parent company to take on large projects that none of the companies would be able to engage in single handedly. This also allowed the parent company to play it safe by making more accurate assumptions when making bids simply because each of the contractors where his own businesses.

As we have discovered over the most recent articles I have published, there are a number of different methods you can take for pursuing strategic acquisition growth within your organization. Depending on your current position and vision for what you want to expand your business into, you may want to take on any one of the three methods we have discussed. Let the Deal Capital professionals of New York give you the assistance you need.


Troy Jenkins
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