Conglomerate Mergers - Types of Conglomerate Mergers, Benefits of Conglomerate Mergers

July 16, 2010Mergers and Acquisitionsby EconomyWatch

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As per definition, a conglomerate merger is a type of merger whereby the two companies that merge with each other are involved in different sorts of businesses. The importance of the conglomerate mergers lies in the fact that they help the merging companies to be better than before.

Types of Conglomerate Mergers

There are two main types of conglomerate mergers – the pure conglomerate merger and the mixed conglomerate merger. The pure conglomerate merger is one where the merging companies are doing businesses that are totally unrelated to each other.

The mixed conglomerate mergers are ones where the companies that are merging with each other are doing so with the main purpose of gaining access to a wider market and client base or for expanding the range of products and services that are being provided by them

There are also some other subdivisions of conglomerate mergers like the financial conglomerates, the concentric companies, and the managerial conglomerates.

Reasons of Conglomerate Mergers

There are several reasons as to why a company may go for a conglomerate merger. Among the more common reasons are adding to the share of the market that is owned by the company and indulging in cross selling. The companies also look to add to their overall synergy and productivity by adopting the method of conglomerate mergers.

Benefits of Conglomerate Mergers

There are several advantages of the conglomerate mergers. One of the major benefits is that conglomerate mergers assist the companies to diversify. As a result of conglomerate mergers the merging companies can also bring down the levels of their exposure to risks.

Implications of Conglomerate Mergers

There are several implications of conglomerate mergers. It has often been seen that companies are going for conglomerate mergers in order to increase their sizes. However, this also, at times, has adverse effects on the functioning of the new company. It has normally been observed that these companies are not able to perform like they used to before the merger took place.

This was evident in the 1960s when the conglomerate mergers were the general trend. The term conglomerate mergers also implies that the two companies that are merging do not even have the same customer base as they are in totally different businesses.

It has normally been seen that a lot of companies that go for conglomerate mergers are able to manage a wide variety of activities in a particular market. For example, these companies can carry out research activities and applied engineering processes. They are also able to add to their production as well as strengthen the marketing area that ensures better profitability.

It has been seen from case studies that conglomerate mergers do not affect the structures of the industries. However, there might be significant impact if the acquiring company happens to be a leading company of its market that is not concentrated and has a large number of entry barriers.

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