The strategic corporate investment simply explained

Business groups are sometimes created under the strategic leadership of a holding company that acquires stakes in strategically suitable companies. Such holding companies derive value from the strategic positioning of their group of operating companies.

Some holding companies tend to be centrally managed, while others give their operating companies considerable entrepreneurial freedom. In some groups, intercompany cooperation is prescribed, in others it is desired and encouraged, and in others the holding company even relies on competition between its companies to stimulate performance.

Example 1: The Wuppertal-based Gesco Group is one of the holding companies that gives its subsidiaries a great deal of operational freedom to develop their businesses. Cooperation between the companies is possible, but not a must.

Example 2: The French KemOne Innovative Vinyls, which comprises Arkema’s plastics processing activities, required its operating companies to procure essential material requirements via the holding company’s central purchasing department. Strategic and operational decisions had to be closely coordinated with the holding company in Reims and were partly predetermined. As a result, the Group lost operational clout in the markets. It was acquired in 2016 by OpenGate Capital, a private equity firm based in Los Angeles, California. The group of plastics processing companies was renamed “Ivy Group.” Since the change of shareholders, the autonomy of the operating companies has increased and the shareholders have assumed their role as supporters and sparring partners. The companies became powerful again.

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