Recent examples can be seen at two companies: Bayer AG, which successfully outsourced its specialized chemistry spin-off Lanxess; and Siemens, which is preparing to launch their medical technology branch hopefully in March. Both of these companies and many other multinationals around the world have already seen the benefits of dividing themselves into spin-off branches and taking advantage of globalization and digitization in order to differentiate these smaller concepts from the parent company and adapt to a different country or production strategy.
Professor Dirk Schiereck, who teaches corporate financing at the University of Darmstadt stated that the separated branches have a much higher potential for growth and profit than the sections connected to the larger corporation. This happens due to the increased freedom these spin-offs enjoy and their higher capacity to adapt to other markets”. In contrast, Prof. Dr. Thomas Hutzschenreuter, who holds the the Chair for Strategic and International Management at TUM School of Management and has analyzed over 55.000 investments and disinvestments, has hinted at the fact that separated and more specialized companies are not always the best idea. He states that it could make sense for a business to become fragmented during some parts of its development, but that is not always the case.
The opinion among analysts appears to be that fragmented and more diverse businesses are always objectively better than big conglomerates. Carsten Stäcker, who advises market transactions at the consulting company PwC explains that investors have a natural and understandable problem with conglomerates, as for them it is way more advantageous to be able to invest in smaller parts individually than to have to bet with a lot more money on the entire combined company.
There is a lot of pressure on investors to decrease their spending and find better conditions for their transactions in today’s market. Professor Hutzschenreuter broadens our vision by stating that a conglomerate should stay fused to its separate entities if it is possible to establish some form of synergy. Furthermore, he explains that there are examples of businesses that have continued to be a conglomerate without establishing this synergy, making the fusion of the sectors counterproductive and bringing the entire company down.
The advantages of fragmenting a company or not seem to also be variable do to the state of the market. Companies such as General Motors and Siemens were extremely successful for many years as huge conglomerates. Recently a variety of factors have forced them to start spin-offs and nobody can really tell if this is going to be the case forever.
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