This document discusses the evolution and valuation of conglomerates. It notes that conglomerates typically start with a single successful business and use the capital to diversify across many sectors. However, increased competition and regulations often force conglomerates to consolidate into core businesses over time. The valuation of a conglomerate depends on the synergies across businesses, diversity of industry exposure to balance risk, and how well the mix of businesses hedges against downturns in any one sector. Finally, conglomerates become associated with their most prominent brand, which can influence or hinder growth of other entities within the group.

1. A Brief Perspective
on Conglomerates
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2. The brave
take it all Throughout history the creation of conglomerates have
all followed a familiar pattern. A few enterprising
individuals start with a single entity, corner a market,
make a success of it and use the capital, value and
experience gained to grow and corner other sectors of
an economy to create large dominant entities across a
broad myriad of sectors.
The above scenario however can only be played out in virgin
or infant economies where opportunities abound at every
corner for those who can spot them.
Names like Carnegie and Rockefeller were synonymous with
the creation of great industrial empires in the early days of
America.
In recent times the same phenomenon is seen repeating
itself in India, South America, Korea, Russia, and in more
recent times, Africa.
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3. The Evolution of From Diversity to
a Conglomerate
Consolidation
All conglomerates eventually end up consolidating
into a few flagship areas of business due to a number
of key similar factors:
• Increased competition in low barrier sectors forcing a
diminishing return in the sector
• Government and legislative developments regarding
monopolies and anti competitive behavior
• Deregulation of certain industries
The above key factors force conglomerates to start
focusing on:
• Core businesses where they still have a competitive
advantage
• Efficient deployment of capital and resources for
equitable returns
• Key issues of continuity and legacy as the founders or
more specifically the patriarchs move on
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4. Leveraging
Equity in Synergies, Diversity and Hedging
Conglomerates
The valuation of a conglomerate is normally based
on the above three key factors:
• Synergies: Both operational and financial, how does
the conglomerate leverage its balance sheet, income
streams and management of capital across the
various business units.
• Diversity: Probably the most critical factor which
analyses sector and industry exposure which then
influences the earnings mix of the conglomerate.
The challenge is finding the optimal mix of industries
which results in an optimal earnings matrix.
• The Hedge Factor: The optimal earnings matrix will
to a large extent influence the hedge factor of a
conglomerates earnings. This factor plays a critical
role when determining where the true value lies in
what is often a mish mash of businesses and
operations.
All of the above have to be optimally aligned
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5. The
Conglomerate Where the equity lies
Brand
Most conglomerates end up being synonymous with a particular business
which carries its branding. This is influenced by
• The most public facing or most prolific in their sector of their businesses
• They may not necessarily be the most profitable
• Depending on the synergies, diversity and hedge mix , the lead brand
can influence of hinder the growth of other entities within the
conglomerate.
• The business of branding conglomerates should always strive to answer
the question – “where does our equity lie and what is the short,
medium and long term strategy and exit”
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6. Case Studies
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7. Global Hyundai
Trends
The Hyundai brand has become synonymous with
passenger cars but operates across a myriad of
industries including:
• Banking
• Aerospace
• Ship Building
• Real Estate
• Property
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8. Global Tata
Trends
Also synonymous with vehicles however has
formidable exposure in:
• IT and Strategy Consulting
• Heavy industry
• Retail
• Coffee shops (Starbucks in India)
• Financial Services
• Mining and Petrochemicals
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9. Global Reliance Industries
Trends
Reliance Industries is probably the classic case of
an unbundling of assets after a Patriarch passes on.
• Founded by Ambani
• Built it into India's most profitable and diverse
conglomerate operating in sectors from power
generation to mobile phone sector.
After the passing of Ambani, the conglomerate was split
into two and each part given to two sons.
• Reliance Industries (industrial holdings, power and
petrochemicals)
• Reliance Corp (telecommunications, media,
financial services and retail)
Note: The brothers have a long standing feud that often
affects global stock markets and the Indian economy
when there is a dispute.
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