What defines a conglomerate merger?

A conglomerate merger is characterized by the combination of firms that operate in completely unrelated business sectors. This type of merger typically occurs when a company seeks to diversify its investments and revenue streams, reducing its overall risk by not being overly reliant on a single industry. By merging with or acquiring firms in distinct markets, the resulting entity can benefit from synergies that arise from shared resources or capabilities, although the markets themselves do not directly relate to one another.

In contrast, a merger between firms within the same industry would be classified as a horizontal merger, while firms merging to enhance their market position typically involve some level of competitive alignment or overlapping markets, indicative of a vertical or horizontal merger depending on their respective positions in the supply chain. Additionally, acquiring competitors specifically denotes a move within the same industry, further distinguishing it from the concept of a conglomerate merger.