Diversification Acquisition

DEFINITION of 'Diversification Acquisition'

A corporate action in which a company purchases a controlling interest in another company in order to expand its product and service offerings. One way to determine if a takeover is a diversification acquisition is if the two companies have different Standard Industrial Classification (SIC) codes, meaning that they conduct different types of business activities.

BREAKING DOWN 'Diversification Acquisition'

A takeover between two companies that share the same SIC code is considered a "related" acquisition.


Conglomerates are often involved in diversified acquisitions either to minimize the potential risks of one business component/industry not performing well in the future or to maximize on the synergies and revenue streams of a diverse operations.



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RELATED FAQS
  1. What is the difference between an acquisition and a takeover?

    There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only ... Read Answer >>
  2. What is the difference between a merger and an acquisition?

    Read about the legal and practical differences between a corporate merger and corporate acquisition, two terms often used ... Read Answer >>
  3. How do I evaluate whether a company is a good acquisition candidate?

    Evaluate whether a company is a good acquisition candidate by analyzing its price, debt load, litigation and financial statements. Read Answer >>
  4. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  5. What is the difference between a merger and a takeover?

    In a general sense, mergers and takeovers (or acquisitions) are very similar corporate actions - they combine two previously ... Read Answer >>
  6. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Answer >>
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