Diversification Acquisition

AAA

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.



RELATED TERMS
  1. Vertical Merger

    A merger between two companies producing different goods or services ...
  2. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  3. Acquisition

    A corporate action in which a company buys most, if not all, ...
  4. Merger

    The combining of two or more companies, generally by offering ...
  5. Principal-Agent Problem

    The principal-agent problem develops when a principal creates ...
  6. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
Related Articles
  1. Fundamental Analysis

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  2. Investing Basics

    Analyzing An Acquisition Announcement

    These deals can make or break investors' returns. Find out how to tell the difference.
  3. Bonds & Fixed Income

    Cashing In On Corporate Restructuring

    Companies use M&As and spinoffs to boost profits - learn how you can do the same.
  4. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  5. Bonds & Fixed Income

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  6. Bonds & Fixed Income

    8 Reasons M&A Deals Fall Through

    Mergers and acquisitions can mean big success. But what about all the deals that fall through?
  7. Entrepreneurship

    Biggest Merger and Acquisition Disasters

    Find out which companies collapsed after merging.
  8. Insurance

    The Wonderful World Of Mergers

    While acquisitions can be hostile, these varied mergers are always friendly.
  9. Investing Basics

    Calculating the Margin of Safety

    Buying below the margin of safety minimizes the risk to the investor.
  10. Fundamental Analysis

    Is India the Next Emerging Markets Superstar?

    With a shift towards manufacturing and services, India could be the next emerging market superstar. Here, we provide a detailed breakdown of its GDP.
RELATED FAQS
  1. What due diligence steps should an investor undertake before each investment?

    There are several key areas investors should research when performing due diligence of an investment. Market Capitalization Large ... Read Full Answer >>
  2. Is my IRA/Roth IRA FDIC-Insured?

    The Federal Deposit Insurance Corporation, or FDIC, is a government-run agency that provides protection against losses if ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  5. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!