Introduction
A conglomerate merger refers to a merger between two firms which are carrying on business activities unrelated to each other. Conglomerate mergers generally occur between companies operating in different industries, different categories, or in different geographical locations. The purpose of conglomerate mergers may be a business expansion or other business reasons.
Understanding Conglomerate Mergers
Basically, there are two types of conglomerate mergers, namely, pure and mixed mergers. A pure conglomerate merger involves companies having nothing in common between them.
A mixed conglomerate merger involves companies which look for expansion in business, such as an extension of products to different geographical locations or development of new products.
In a conglomerate merger, the businesses of the two companies are different, and neither of them competes with the other in the market. However, the companies, for business reasons, enable the joining of their businesses. The reasons could be increasing the overall market share, diversification of their business, enabling cross-selling of products, and to just to have benefits of synergy.
The business opportunities could be in the form of marketing, financial planning, leveraging research and development, product distribution, or any other area. The general belief, like in the case of any other merger, is that the merged entity will perform better than having two separate companies for all stakeholders.
A conglomerate merger could be disadvantageous, such as loss of efficiency, diverse cultures of two organisations, neglecting core business activities while concentrating on building synergies. Hence, many people who oppose conglomerate mergers say that such mergers decrease the overall performance, especially in the case of large companies.
Conclusion
A conglomerate merger can be challenging for companies coming from diverse background and cultures. There can also be a mismatch in size and management differences. Hence, it is important that the merging companies develop a post-merger strategy to carry on the business.
The strategy can include developing a new corporate culture, new vision and mission of the merged entity, which is towards the success of the new company and in the interest of its stakeholders.
