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Hi,
below is an extract from WAT co-answers.
“where synergies are not available, with quoted companies there is generally no benefit arising
from a company diversifying because shareholders can themselves diversify in whatever ways
they choose. However, this is a private company and diversification would then provide some
portfolio effect for the major shareholders.”why are the shareholders in private co likely to experience a portfolio change compared to those in quoted co?
I’ll deal first with investment in a listed company. If you owned shares in an airline but worried about the prospects of that company, it is easy to sell some of your shares and reinvest in, say, a supermarket company and a television company as well. This easily achieves a degree of diversificztion.
However, if you own shares in a private company, selling some of them is much more difficult. There is no quotes price; it can be difficult to find a buyer; the difficulty in selling will be recognised by potential buyers and this reduces the amount they will pay. Diversification by creating your own portfolio is quite difficult so there is an advantage if the company you are invested in does it for you.
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