---
title: "Diversifying M&A: does it create value? Three papers"
description: "Does buying outside your industry create value? Three papers cannot settle it. What each says, what it leaves open, and how to test a deal yourself."
url: "https://staging.khoi.co.uk/en/blog/mua-ngoai-nganh-tao-gia-tri"
lang: en-GB
author: "Lê Quốc Khôi"
date: 2026-11-03
updated: 2026-11-03
topics: ["Strategy & leadership"]
tags: ["Mergers and acquisitions", "Diversification", "Corporate strategy", "Emerging markets", "Synergy"]
---

# Does diversifying M&A create value? Reading three papers

## Key takeaways

- The library sorts M&A deals into five types by relatedness. The unrelated type is recorded as little synergy, mainly diversification of capital [Types of M&A by relatedness](https://staging.khoi.co.uk/en/framework/ma-types-by-relatedness).
- Rumelt's (1982) abstract: the link between diversification strategy and profitability remains after the effect of industry is removed. The abstract does not give the direction of the link and does not mention M&A (Rumelt, 1982).
- Lebedev et al. (2015): research on M&A in emerging economies is much smaller than on developed ones; the paper reviews findings and develops propositions (Lebedev et al., 2015).
- Gopalan, Ouyang and Rajan (2018): in developing Asia, 1990–2013, greenfield FDI contributes positively to growth while M&A-type FDI shows no significant growth effect. That is the effect on the host economy, not the buyer's return (Gopalan et al., 2018).
- Company A and its three targets, including the twelve-café chain, are invented for illustration. The other figures come from the cited sources.

Company A mills and exports rice in the Mekong Delta. This year three brokers ring at once: one offers a rival's mill, one a packaging workshop that sells sacks to rice mills, one a twelve-café chain whose owner wants to retire. All three say "synergy". Company A and its targets are my invention.

The board asks which purchase would create value. This post reads the three papers the site's library holds on that question. I should say at the outset that I could read only the abstracts, and none of the three answers yes or no for A's deal. They show what to ask.

## What does it mean for a target to be "related"?

The library sorts deals into five types by the relationship between buyer and target, each with its own expected source of value. The framework's question is whether the other business is related enough to your own to create synergy [Types of M&A by relatedness](https://staging.khoi.co.uk/en/framework/ma-types-by-relatedness).

> **Figure:** [Types of M&A by relatedness](https://staging.khoi.co.uk/en/framework/ma-types-by-relatedness) (five deal types by relatedness, from the library's framework summary; its origin is given as Rumelt, 1982)

Place A's three offers in the table. The rival's mill is horizontal, with value expected from scale and share. The packaging workshop is vertical, with value along the chain. The café chain is unrelated, where the table records little synergy. The sorting is mine.

"Synergy" is easily used as a guarantee. In the site's glossary, [synergy](https://staging.khoi.co.uk/en/glossary#synergy) is combined value greater than the sum of the parts, and Ansoff stresses naming its source precisely because vague claims are easily inflated. The table is also not the [Ansoff matrix](https://staging.khoi.co.uk/en/blog/ma-tran-ansoff-bon-huong-tang-truong), which asks whether product and market are old or new.

## What did Rumelt (1982) actually test?

The table gives Rumelt (1982) as its origin, and I have to be straight about that. The abstract is about diversification strategy and profitability. It does not mention acquisitions or mergers and does not list the five types above. I could not open the full text, so I do not know whether the table appears in the paper or whether the library credits it with more than the paper shows. Use the table to sort deals; do not treat it as Rumelt's result.

What the abstract says: the paper replicates a known association between diversification strategy and profitability using more recent and complete data. The author argues that an association should remain once differences in industry profitability are removed, and the tests confirm the prediction (Rumelt, 1982).

The abstract gives no direction for the association, does not say whose data were used, and concerns firm-level strategy, not a single deal. An average across many firms does not tell A how this purchase will turn out.

## Does buying a rival in the same industry guarantee synergy?

No. Three same-industry deals with public sources show three different prices. I use them to test the table, not to grade success, because I have no source on what happened after any of them.

**Baosteel and Wuhan (Reuters, 21 September 2016).** Wuhan announced that Baosteel would issue new shares to absorb it; both are state-owned and the deal awaited government approval. Reuters places it in Beijing's push to consolidate a fragmented steel industry and cut excess capacity, yet also says Baosteel faces the task of integrating a loss-making competitor. An analyst at CRU said the deal would not necessarily lead to capacity cuts (Reuters, 2016). The synergy has a name (capacity, scale), but the buyer takes on a debt-laden, loss-making rival.

**Hisense and Toshiba (release of 14 November 2017).** Hisense agreed to buy 95 per cent of Toshiba Visual Solutions for ¥12.9 billion, with a 40-year licence to use the Toshiba brand for partners in Europe, South East Asia and other markets. The release itself claims the two brands together would hold over 20 per cent of the Japanese market, and cites IHS for the sales rankings (Hisense, 2017). It does not say what the ¥12.9 billion covers or what happens when the licence ends. On my reading, the brand arrives, for those markets, as a licence with an end date, not as something Hisense owns.

**Exxon and Mobil (FTC, 30 November 1999).** The US Federal Trade Commission alleged the merger would lessen competition in several oil markets and accepted a proposed settlement requiring the sale or assignment of about 2,431 gas stations, a California refinery and other assets. It called this the largest retail divestiture in its history (Federal Trade Commission, 1999). The closer the buyer is to its rival, the larger the overlap, and the overlap is what a regulator or you must cut.

All three are horizontal or close to it by my sorting, so none answers the question about buying outside your industry, and I found no case in the library that is clearly unrelated and has public results.

## Is the evidence different in emerging economies?

It may be, and that is the point Lebedev, Peng, Xie and Stevens (2015) make. According to the abstract, studies of M&A in and out of emerging economies are far fewer than studies of developed ones, while institutions, corporate governance and markets differ significantly between the two. The paper reviews findings on antecedents and performance outcomes in the second group and develops propositions (Lebedev et al., 2015).

For a reader in Vietnam I draw two things. First, the abstract says studies of developed economies are far more numerous, so the familiar textbook evidence probably comes mostly from those markets, not yours; that is my inference, and the abstract mentions neither textbooks nor Vietnam. Second, a review that develops propositions is a signpost, not a table of results.

Gopalan, Ouyang and Rajan (2018) offer a different angle. The abstract says that across developing Asian economies in 1990–2013, greenfield FDI contributes positively to growth while FDI in the form of M&A has no significant growth effect, and greenfield's effect on domestic capital formation is stronger and larger. A note in the paper says the data cover 42 economies but the regressions end up with 24 (Gopalan et al., 2018).

That is the host economy's question: what does the country get. A's board is asking about A's shareholders, and the abstract does not tell us that M&A hurts buyers. The paper is also about foreign capital, while A would buy a mill at home.

## What should Company A ask before buying?

Two questions for each target: which type is it, and what must be true for that type's synergy to happen? The last column is my own, not drawn from any source.

| Target | Type in the table | What must be true |
|:--|:--|:--|
| Rival's rice mill | Horizontal | The combination really cuts cost, and the two catchments do not compete for the same paddy |
| Packaging workshop | Vertical | A buys enough sacks to keep the workshop near capacity, or the workshop keeps its outside customers even though its owner now competes with them |
| Café chain | Unrelated | The chain's own cash flow covers the price, and A has someone who can run retail |

The first two rows let the board write down a specific source of synergy and test it. The last row has nothing to test, so the purchase has to stand on price and on the chain's own cash flow: not a reason to refuse, only a reason not to accept "synergy" as the answer. This suits a deal where each target has one clear reason for buying; if you are buying for several reasons at once, separate them and ask each in turn.

After closing, the synergy still has to be extracted. According to the library's summary of Haspeslagh and Jemison (1991), the integration style is chosen by two needs: strategic interdependence between the two firms and the autonomy of the acquired unit (Haspeslagh and Jemison, 1991). The packaging workshop needs shared orders and production schedules, so interdependence is high; the café chain sits nearer the low end because A has little to share with it. That reading is mine. The four styles and how to choose between them are in [After the deal: four integration styles](https://staging.khoi.co.uk/en/blog/sau-thuong-vu-bon-kieu-tich-hop), and how a multi-industry group divides capital is in [internal capital markets](https://staging.khoi.co.uk/en/blog/thi-truong-von-noi-bo-tap-doan).

## Going deeper: what I read and what I did not

All three main papers sit behind paywalls and I read only the abstracts: Rumelt (1982) through a publishing database, because Wiley blocks automated access; Lebedev et al. (2015) through the IDEAS/RePEc research index; Gopalan et al. (2018) through the Springer page, including the notes shown in the preview. I did not read the methods or results of any of them, so apart from that note, everything above is what an abstract says. If you are making a real decision, read the full texts.

I could not check whether the five-type table is Rumelt's, or the direction of his result. I know Haspeslagh and Jemison only through the library's framework summary. I read the Reuters piece (via Asia Times) and the Hisense release in full, and the FTC release through an archived copy because the original page blocks automated access.

## Frequently asked questions

### Is buying inside your own industry always better than buying outside it?

None of the three papers I read says so. The library framework pairs the unrelated type with little synergy [Types of M&A by relatedness](https://staging.khoi.co.uk/en/framework/ma-types-by-relatedness), yet Reuters describes Baosteel's purchase of Wuhan, both steelmakers, as integrating a loss-making rival, and an analyst says it need not cut capacity (Reuters, 2016). Being in the same industry makes the reason for buying clearer. It does not make the outcome more certain.

### Is it true that 70 to 90 per cent of mergers fail?

I have no source for that figure. The note in the library framework says the claim usually comes without a source and advises caution [Types of M&A by relatedness](https://staging.khoi.co.uk/en/framework/ma-types-by-relatedness). The abstracts of the three papers I read give no comparable number. Do not use it to frighten a board or to justify a deal.

### Does the study of FDI into developing Asia mean M&A is worse than building new?

For the host economy it may; for the buyer it is not known. Gopalan, Ouyang and Rajan (2018) measure the effect on growth and domestic investment over 1990–2013, not the investor's return (Gopalan et al., 2018). It also concerns foreign capital, so it does not transfer directly to a Vietnamese firm buying a domestic company.

### Did Rumelt (1982) conclude that related firms earn more?

The abstract I read does not state the direction. It says the link between diversification strategy and profitability remains once the effect of industries differing in profitability is removed (Rumelt, 1982). "Related earns more" is often attributed to this paper, but I do not have the full text to confirm it, so I do not repeat it as a result.

## References

- Federal Trade Commission (1999) *Exxon/Mobil Agree to Largest FTC Divestiture Ever in Order to Settle FTC Antitrust Charges; Settlement Requires Extensive Restructuring and Prevents Merger of Significant Competing U.S. Assets*. FTC press releases. Available at: https://www.ftc.gov/news-events/news/press-releases/1999/11/exxonmobil-agree-largest-ftc-divestiture-ever-order-settle-ftc-antitrust-charges-settlement-requires (Accessed: 2 November 2026).
- Gopalan, S., Ouyang, A. and Rajan, R.S. (2018) ‘Impact of greenfield FDI versus M&A on growth and domestic investment in developing Asia’, *Economia Politica*, 35(1), pp. 41–70. https://doi.org/10.1007/s40888-017-0085-z
- Haspeslagh, P.C. and Jemison, D.B. (1991) *Managing acquisitions: creating value through corporate renewal*. New York: Free Press.
- Hisense (2017) *Hisense Purchases Toshiba Television Business*. PR Newswire. Available at: https://www.prnewswire.com/news-releases/hisense-purchases-toshiba-television-business-300555472.html (Accessed: 2 November 2026).
- Lebedev, S. et al. (2015) ‘Mergers and acquisitions in and out of emerging economies’, *Journal of World Business*, 50(4), pp. 651–662. https://doi.org/10.1016/j.jwb.2014.09.003
- Reuters (2016) *China Baosteel's takeover of Wuhan to create world's No. 2 steelmaker*. Asia Times. Available at: https://asiatimes.com/2016/09/china-baosteels-takeover-of-wuhan-to-create-worlds-no-2-steelmaker/ (Accessed: 2 November 2026).
- Rumelt, R.P. (1982) ‘Diversification strategy and profitability’, *Strategic Management Journal*, 3(4), pp. 359–369. https://doi.org/10.1002/smj.4250030407

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