Financial Engineering Category
• Industry roll up. It may be possible to combine a number of companies in a
highly fragmented industry, with the objective of creating economies of
scale in marketing, production, and distribution. This approach is difficult,
and requires considerable capital to achieve.
• Accretive acquisitions. A common approach to acquisitions is to methodically
acquire smaller businesses that can be easily absorbed into the parent
company, resulting in a gradual increase in overall company sales and profits.
When handled correctly, this approach can offer superior returns on an
ongoing basis, while also eliminating companies that might eventually grow
up to become significant competitors.
• Split up. If a company owns several businesses that do not have mutual
synergies, it may be best to spin off parts of the business or sell them outright.
Doing so allows management to focus more closely on the remaining
company operations.
• Maximize cash flow. In a staid industry where additional growth seems
unlikely, a company can instead focus on generating the largest possible
amount of cash, which it transfers to shareholders via dividends or stock
buybacks.