Companies may invest in other companies for strategic reasons to facilitate growth or for financial returns. Key motivations include accessing new markets and technologies, vertical integration, diversification, acquiring talent and patents, increasing market share and margins. It can be beneficial as it provides economies of scale, operational synergies and added value. But it also carries risks like overpaying, culture clash and integration challenges.
Expanding market reach and share
Investing in another company allows access to new geographical markets, customer segments and distribution channels. This rapidly expands reach and market share for products and services. It avoids time-consuming organic growth, leveraging existing brand equity and infrastructure.
Gaining innovative technologies and capabilities
Technology companies especially make investments to gain innovative IP, products and engineering talent. This gives them a competitive edge and differentiation for offerings. It augments in-house R&D capabilities and saves years of internal development.
Achieving vertical integration
Companies may pursue vertical integration by acquiring suppliers or distributors. This increases control over the value chain, secures input sources/outputs and enhances profit margins. It also improves coordination and service levels for customers.
Providing diversification
Investing in non-core businesses allows revenue diversification into new products/services. This reduces overall risk exposure and volatility for the parent company. It may also create cross-selling opportunities and economies of scope.
Companies make investments in other companies primarily for strategic growth opportunities and financial returns. Benefits include increased scale, access to new markets and capabilities. But overpayment risks, integration challenges and culture mismatch need to be managed.