|Acquisitions and mergers are the quickest way for a company to diversify. |
Having the financial strength in cash, equity, and credit rating, a company can rapidly enter new markets without the need of investing through internal means. Thus, it forgoes the uphill battle to obtain a satisfactory market share against existing and well-entrenched competitors.
It makes sense to acquire an awaiting competitor versus fighting it from ground zero...
The acquisition and merger approach is especially true for horizontal diversification. It encompasses unrelated businesses and markets to a company's current products and markets.
Vertical diversification or integration involves entry into new markets and channels of distribution within the same industry(s).
Exxon Mobil is an examples of vertical integration. Disregarding other non-related holdings, it is vertically integrated in almost every aspect of oil... exploration, drilling, petrochemical refining, and added value products (consumer and industrial products).
These are channels of distribution covering a variety of classes of trade that involve vertical integration of the oil industry. Additional areas where vertical integration could apply within the oil industry are the support industries (e.g. surveying, valves, specialized software, and pipe).
A business plan . . . similar to the five year corporate strategic plan is necessary for any diversification decision. Its purpose is to support return on investment (ROI) from a marketing and financial performance standpoint
FOCUS Associates . . . understands the need for confidentiality, diplomacy, and subtlety in assisting companies in their diversification efforts, especially in acquisition and merger searches, analysis, and negotiations.