What type of merger combines unrelated firms often for the purpose of diversification?

A conglomerate merger is formed when two firms that operate in completely different industries combine. The primary motivation for this type of merger is often diversification, allowing the merging companies to reduce risks by spreading investments across various markets. By acquiring businesses that are not directly related, the firms can leverage their existing resources, expand their product lines, and potentially improve their financial stability against market fluctuations in their original sector.

This strategy differs from other types of mergers, such as joint ventures, where two companies collaborate for a specific project while remaining independent, or vertical mergers, which involve companies at different stages of production within the same industry, aimed at improving supply chain efficiencies. Similarly, acquisitions can occur in any context and may not necessarily focus on diversification, as they often involve the purchase of a firm within the same industry for strategic consolidation. Thus, a conglomerate merger distinctly focuses on bringing together unrelated businesses to enhance market presence and reduce dependency on a single industry.