The Trend of Companies Investing Outside of Their Sector - is it a Lucrative Business Decision?

Nov 16, 2015, 06:32 ET from ESN Investments GmbH

LONDON, November 16, 2015 /PRNewswire/ --

 

  • A trend is growing of multinational companies investing in new sectors with The Lego Group investing in green energy 
  • Some companies are trying to future-proof themselves, others are focusing on profit 
  • Business expert explains pros and cons of both 

There's a growing trend of multinational companies investing in ventures outside of their sectors, but is it a lucrative business decision asks investment specialist Nery Alaev.

The Lego Group recently invested in two major producers of wind turbines with its CEO Jørgen Vig Knudstorp stating in this Reuters video that the business reason was for long-term stability.

In the video, Vig Knudstorp points out that by 2020, the company aims to be 100% reliant on renewable energy - a clear indication of a long-term strategy.

Director of Vienna-based ESN Investments GmbH, Nery Alaev, comments on the benefits of The Lego Group's savvy decision:

"From this, it's possible to conclude that some corporate investment in new sectors has long-term strategy at heart.

"The benefit is that investors will see stability in the company, as it's indicated that a long-term mindset is in place, not a short-term one."

In contrast, long-term strategy may not have been at the base of the recent acquisition of AOL by Verizon.

A Fortune article states that Verizon is attempting to establish itself in content creation services by acquiring AOL.

Nery Alaev comments: "Any acquisition like this can fail badly, highlighting a diminished sense of long-term strategy.

"Failed past ventures show that nothing is predictable. These decisions should be based in reality, not market speculation."

Similarly, Disney's recent investment in Jaunt VR, a virtual-reality start-up, indicates that expansion rather than long-term strategy is at the forefront of such decisions.

Alaev says: "Investments in 'trendy' areas of growth such as VR, 3D technology, etc., is risky.

"Years ago, fevered investing in online businesses was popular - brought to stop by the dot.com crash in 2000."

In summary, Nery Alaev comments:

"Investment by companies outside of their own sectors is usually a profit-driven venture, but longer-term motives are present in some decisions made - these decisions will have a lasting effect."

About Nery Alaev 

Nery Alaev is the Director of ESN Investments GmbH, which specialises in the acquisition and development of property in Germany and Austria.

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SOURCE ESN Investments GmbH