DEFINITION of Conglomerate Boom
The conglomerate boom was a period of rapid growth in the number of conglomerates, or big corporations made up of many companies spanning multiple and often unrelated fields or industries. The major boom in conglomerate formation occurred in the period following World War II thanks in part to low interest rates, which helped finance leveraged buyouts. A series of economic tailwinds came together to create an environment supporting a flourishing middle class. The conglomerate boom coincident with the period now regarded as The Golden Age of Capitalism.
BREAKING DOWN Conglomerate Boom
The conglomerate boom occurred in the 1960s thanks to low interest rates and a market that fluctuated between bullish and bearish, providing good buyout opportunities for acquiring companies. However, when interest rates began to rise again in the '70s, many of the biggest conglomerates were forced to spin off or sell many of the companies they'd acquired, particularly when they'd only done so to raise more loans and had failed to increase the efficiency of the companies they'd absorbed.
That said, conglomerates can be advantageous, particularly if the conglomerate is well-diversified. For example, Berkshire Hathaway is a conglomerate holding company that has operated very successfully for years.
Today, especially in advanced economies like the U.S., the bargaining power of conglomerate corporate forms is overtaken by advancements in capital markets. For example, many monoline, private companies have access to the same, if not more, levels of capital as even the biggest conglomerates of yesteryear. As such, as a business or growth strategy, becoming a conglomerate doesn't offer the same economies of scale as they once did. In fact, it's not uncommon for people to refer to the private market as the new public market: To raise significant capital, a company simply no longer needs to be publicly traded. The rise of venture capital and private equity has played a big role in this shift.
Furthermore, many businesses today prefer to specialize in what they know best, while leasing, licensing or partnering with other complementary businesses. This has cut into the once sacred operational economies of scale believed to permeate throughout conglomerates.