A merger is a common business exit strategy as well as a critical growth tool. A conglomerate merger is when two companies with unrelated business activities or in diverse geographical areas come together to form a larger company. A pure conglomerate involves two firms that have nothing in common, while a mixed conglomerate takes place between organizations that, while they have unrelated business activities, are trying to gain product or market extensions through the merger.
In a conglomerate merger, the two markets continue to face the same competitors as before the merger. An example often held up as a conglomerate merger was the coming together of Walt Disney Company and the American Broadcasting Company.
PayPal and eBay
At the beginning of 2018, eBay announced that the online marketplace was dropping PayPal as its primary partner for processing payments in favor of Dutch company Adyen. In 2002, eBay paid $1.5 billion to buy PayPal, an online payments company whose founders include Elon Musk and Peter Thiel. The investment proved successful. After investors urged eBay to spin off PayPal in 2015, the payment company's market value was nearly $50 billion. It's now above $100 billion.
Disney and Pixar
If it hadn't been for Bob Iger engineering the deal that brought Steve Jobs' Pixar Animation Studios to Disney, popular film favorites such as "Finding Dory" and "Zootopia" would not have become, respectively, the second and third highest-grossing films of 2016. Along with "Frozen," made in 2013, these films hold the record with $1.3 billion in global receipts.
It's safe to say that Disney's acquisition of Pixar jumpstarted the studio, bringing its popularity back to what is called the Disney Renaissance, that period from 1989-to-1999 which produced such classic cartoons as “The Little Mermaid,” “Beauty and the Beast,” “Aladdin” and “The Lion King.”
Amazon and Whole Foods
Amazon announced that it was buying Whole Foods for $13.4 billion in 2017. The acquisition is a reflection of both the vastness of the grocery business (about $800 billion in annual spending in the United States) and a desire to turn Amazon into a more frequent shopping habit by becoming a significant player in food and beverages. Amazon, the online retailer, will now have brick and mortar grocery stores.
Conglomerate mergers are helpful for companies to extend their corporate reach, to gain synergy and to expand their product range. One disadvantage, however, may be that each company involved in the merger does not have experience in the business functions of the other which can lead to severe mismanagement in the organization.
Liz Gold has been published in a variety of capacities writing about everything from Kennebunkport and southern Maine municipal government, art and cultural events, to cloud technology and business transformation. Her experience extends to both corporate and freelance; she's a former Senior Editor at the B2B publication Accounting Today, writing about public accounting firms with a specialization in diversity, technology, best practices, and business development. During her tenure, she was also co-founder and editor of AccountingTomorrow, a blog focused on intergenerational workplace issues that is still thriving today. Most recently, Liz has been writing about accountants working in the cannabis industry on CPA Trendlines and reporting on cannabis trends for Southern Oregon Good Herb magazine in Oregon.