Advantages and Disadvantages of Conglomerate Mergers

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All conglomerate mergers have their advantages and disadvantages.
All conglomerate mergers have their advantages and disadvantages. (Image: Jupiterimages/Brand X Pictures/Getty Images)

Conglomerate mergers occur when two companies that offer different services, or are engaged in different types of business, merge. A conglomerate also can occur when two like companies want to merge to increase their market share. Usually a conglomerate merger is meant to make both entities stronger than they would be individually, and it occurs between two large-scale companies. This can sometimes be controversial, depending on what company is trying to merge with another. These types of mergers have their advantages, but also their disadvantages.

Audience

One clear advantage to a conglomerate merger is an exponential increase in audience reach. If company A merges with company B, then company A now has access to all of company B’s market base. Before, company A only had access to its own, and it’s likely that company B was a competitor. By merging, the two companies have effectively reached twice the audience size as before, while eliminating competition.

Diversification

By diversifying a company’s holdings, this spreads risk out among more factors, thereby decreasing the chances of overall company failure if one leg fails. This is an advantage most of the time, but it can also be a disadvantage if the merger in question spreads a company’s spreadsheet too thin. An example of this would be a company spreading its budget across eight divisions with a merger when it only has the funding to do five of those divisions well.

Homogenization

Over time, homogenization can occur after company A merges with company B. Core values of one company may get devoured by the other, and a homogenization occurs within the new conglomerate. Many argue that this is a clear disadvantage of conglomerate mergers, because it leaves the consumer, and the business world at large, with fewer choices in the marketplace. Instead of having choice A and B, now you have only choice C.

Size

Size can be an advantage or a disadvantage when it comes to conglomerate mergers. When company A takes over company B, it also inherits all the employees along with the accounts. Sheer numbers of people increase, which in some cases, if the end company can handle it, can be a good thing. However, the structure of an entire industry may change because of a conglomerate merger, thereby leaving would-be workers out in the cold if the end company can accommodate only so many professionals.

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