How Related Diversification and M&A Drive Faster Business Growth

What is Related Diversification?

Related diversification involves growing a business by entering new areas that have a connection to the existing business, often by leveraging current skills and capabilities like technology, product type, customers, or production skills.

How Related Diversification is Distinction from other M&A Strategies

  • Horizontal acquisitions involve buying competitors in the same market, offering immediate revenue growth but limited profit increase.

  • Vertical integration involves acquiring suppliers or sometimes customers to integrate the value chain. Buying customers is less common due to the risk of alienating other customers.

  • Unrelated diversification (conglomerate strategy) involves acquiring businesses with no direct connection to the core business and is now more common for financial investors.

Advantages of Related Diversification

  • Relatively low risk as it complements the existing business.

  • Offers more synergies and profit improvement opportunities compared to unrelated acquisitions.

  • Provides a wider range of potential acquisition targets than horizontal acquisitions.

  • Has the potential for significant growth through cross-fertilization of customers, technologies, products, or geographies.

Key considerations for successful related diversification

  • Conduct a thorough market overview to identify suitable targets.

  • Assess internal skills and capabilities to ensure effective integration.

  • Focus on excellent M&A execution and post-merger management.

Identifying the Right Targets

Use market intelligence, industry events, and consultants to find companies that can leverage your existing strengths

Importance of Market Perspective

Start with a market scan to understand available opportunities before extensive internal analysis

Volume of Options

Evaluate at least 50 potential options for every acquisition pursued.

Want to Drive Faster Business Growth?

Leave a Reply

Your email address will not be published. Required fields are marked *

Update Profile Picture