What Is a Secondary Business?
A secondary business is a part of a corporation that is not part of its core functions but supplements it instead. A secondary business can contribute to the overall health of the corporation and can hold assets just as any other business unit.
Understanding a Secondary Business
Secondary businesses that were created to provide a service to a parent company or their customers can become sizable, free-standing and profitable enterprises in their own right. Even if a secondary business is spun off, sold, or goes public, it may still continue to provide services for the originating corporation depending on the remaining investment.
Secondary Business vs. Subsidiary
A secondary business may be considered a subsidiary if the parent or holding company holds more than 50% of its outstanding shares, known as a controlling interest. If a subsidiary is 100% owned by a parent or holding company it is known as a wholly owned subsidiary.
A secondary business is most likely to be brought forward as an option during the reorganization or distribution of a multi-business corporation and can be either part of the company making the acquisition or the target company.
A secondary business may not be a formal subsidiary but simply be a unit of a holding company or conglomerate, contributing a fraction of the revenue to the parent's bottom line.
Examples of a Secondary Business
There are numerous examples of secondary businesses that have been spun-off, stand alone from their parents, or even dwarf the companies they were once subordinate to. Some examples include:
- Ally Financial Inc.: Formerly known as GMAC Inc. (an acronym for General Motors Acceptance Corp.), this lender was founded in 1919 by General Motors to provide financing to car buyers. It was later involved in insurance, mortgage lending, and other financial services. It became a bank holding corporation in 2008 and took its current name in 2009. Ally went public in 2014.
- GE Capital: This financial services unit of General Electric provides commercial lending and leasing for a variety of customers, as well as for buyers of GE's big-ticket products, such as energy, healthcare equipment, and commercial aviation products. It was founded in 1932 and has over $500 billion in total assets. it spun off its consumer finance arm, Synchrony Financial, via IPO in 2014.
- Sidewalk Labs Inc.: This company, owned by Alphabet Inc. (Google's parent). provides mapping, congestion, and road condition monitoring information that can help cities plan for greater efficiency in road, parking and transit projects.