Bolt-On vs. Diversification

February 14, 2022
by an investor from University of Illinois at Urbana-Champaign in Peoria, IL, USA
Looking for pros/cons of making an acquisition within the same industry of an owned business vs. building a portfolio of unrelated businesses. Diversification into other industries seems beneficial at first pass, but trying to capture synergies by acquiring in the same industry is tempting. Does anyone have experience with bolt-on transactions? If so - Did you capture more or less synergies than expected? Were more synergies found on the revenue or the cost side?
Apologies for the buzzword-heavy post. I'm basically wondering if synergies are real or just sold by consultants.
from University of California, Berkeley in Sacramento, CA, USA
Can you create an ecosystem of benefits with the other business? Can you vertically integrate? Are there benefits to this vertical integration? Will you gain more competitive advantage (from a porter's 5 forces perspective), if you acquired an adjacent business?
Roll up, which is what you mean by acquiring competitors can typically gain you cost synergies. It's hard to realize revenue opportunities when you buy more of the same thing.. unless scale can lead to pricing power against your customers or buying power from you vendors.
from University of Pennsylvania in Seattle, WA, USA