Question

Should a company pursue an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets would be:_________

Answer 1

Many companies avoid unrelated diversification as a general business rule because of the lack of synergy that exists. When you have related diversity, you can more easily integrate your company brand, philosophies, resources, and partnerships to take full advantage.

Why would a company use unrelated diversification?

The benefits of unrelated diversification are rooted in two conditions:

(1) increased efficiency in cash management and in the allocation of investment capital and

(2) the capability to call on profitable, low-growth businesses to provide the cash flow for high-growth businesses that require significant infusions of cash.

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