The Benefits of Merging Companies from Two Industries
Typically, mergers happen between two companies within the same industry, usually because they have similar interests, valuable consumer bases, and expertise in the same areas. These mergers create super-companies that have the potential to dominate the competition within one industry to increase profits on both ends of the partnership. Same-industry mergers work well, but what about dual-industry, or conglomerate, mergers?
Sometimes two businesses in two distinct industries will form a union similar to a traditional merger with the exception that they are involved in entirely separate business activities. Now, this setup may seem counterproductive and counterintuitive; however, with the experienced merger and acquisition consultants at Ashley Capital Group, these partnerships achieve great success.
Types of Conglomerate Mergers
Before we get into the “How?” let’s start with the “What?” There are two different kinds of conglomerate mergers: Pure and Mixed.
- Pure conglomerate mergers are partnerships between different-industry businesses that operate in entirely unassociated and distinct markets.
- Mixed conglomerate mergers, on the other hand, are comprised of two companies looking to expand their products or markets so that they will become more of a hybrid partnership instead of two different core businesses.
Advantages for Both Companies
Diversification of Operations & Target Markets
Conglomerate mergers can achieve similar “super-company” status as traditional same-industry mergers when both companies complement each other. By diversifying business operations and customers, both companies work together (and apart) to bring in a more stable flow of cash to beat out the competition on both ends of the merger.
Increased Clients & Revenue By Cross-Selling
Partnerships are excellent for business growth, as both companies want to help each other out. If these companies are in two separate industries but have similar target markets, they can facilitate cross-selling existing products for more profits for the new, merged business.
Efficiency & Synergy
Conglomerate mergers are more likely to achieve lucrative synergies as both companies conduct business with each market separately and through cross-selling. The result is that the merged business increases its sales and earnings to a level neither company would reach in their individual capacities. Thus, there is a higher value for the combined entity than for the sum of the two parts.
Challenges to Overcome for a Successful Merger
While there are many advantages to a merger between two companies from the same or different industries, there are some difficulties that must be quelled for the alliance to be beneficial. Watch the video below for more information about those challenges:
No difficulty is insurmountable for a merger when there is a stalwart relationship between the companies involved and a desire to grow both parts of the whole. Our M&A consultants frequently bring companies together for successful mergers, and they are skilled at managing strategic partnerships and mergers to keep those relationships strong and advantageous for both parties. Call us today to learn more!