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Conglomerate mergers generally involve the union of two companies that have no type of common interest, are not in competition with any of the same competitors, and do not make use of the same suppliers or vendors. Essentially, the conglomerate merger usually brings together two companies with no connections whatsoever under one corporate umbrella. This type of arrangement can be very desirable when the investors for the newly created conglomerate wish to create a strong presence in two different markets.
When the two companies involved have no direct or indirect connection or interest, this is referred to as a pure conglomerate merger. However, there is a second and less common type of conglomerate merger that is referred to as mixed. The mixed conglomerate merger will still involve companies that are more or less not related in terms of competition, but may have some connection as far as vendors or possibly two aspects of a common industry. For example, if a company chose to merge with a supplier, this could be construed as a mixed conglomerate merger, owing to the former client-vendor connection.
A conglomerate merger can take place for a number of reasons. Often, the merger is undertaken in order to allow two unrelated businesses to draw on the combined resources to strengthen the position of each company in their respective industries. Mergers of this type may come from a desire to protect both entities from economic downturns that could temporarily impact the bottom line of one of the entities. In the case of a mixed conglomerate merger, the purpose may be to generate an increased presence within a given industry by covering more aspects of that industry. Even something as simple as a common approach to business in general may be grounds for the creation of a conglomerate merger.
The conglomerate merger has been the means of many companies surviving shifts in consumer tastes, technological advances that rendered some goods and services obsolete, and political upheavals. Many business analysts find that a conglomerate merger, when handled properly, will result in the newly combined multi-industry corporation being significantly stronger than the individual companies could ever hope to become.
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