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.

INVESTOPEDIA EXPLAINS '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. Acquisition

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

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

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

    The combining of two or more companies, generally by offering ...
  5. Risk Financing

    The determination of how an organization will pay for loss events ...
  6. Captive Value Added (CVA)

    The financial benefit that an organization would gain by using ...
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 >>
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

    What’s the essence of Smart Beta In Fixed Income?

    In essence, smart beta strategies seek to re-write index rules to capture factors, such as value, quality, or low volatility, in their stock portfolios.
  10. Investing

    How To Invest Outside Your Comfort Zone?

    Sometimes, when it comes to investing, we have to step outside of our comfort zone and use investment tools to express a market view or specific outcome.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center