This requires an increase in sales. In order to do this the firm will have to promote existing products and launch new products, this will require an increase in productive capacity. It can finance growth via borrowing, retaining profits (internal funds) or issuing new shares. External Growth
Mergers and takeovers are ways in which businesses can grow externally and grow by joining together to form one company. Mergers are mutual agreements between the companies involved to join together. Most takeovers tend to be hostile, in that the company being taken over does not want to be bought by the larger business. Takeovers do not need to be and are not always hostile, as some in fact can be friendly, in that the company being taken over wants to be taken over and can even ask to be taken over. Why Do Companies Join Together?
It is the quickest and easiest way to expand.
Buying a smaller competitor is normally cheaper than growing internally. Simple survival – survival of the fittest. To continue in the market the company may need to grow and the easiest way is to buy up someone else. The main aim of the business may be expansion.
Investment purposes. Buying up other businesses is a form of investment. To prepare for the European Single Market.
To asset strip. Some companies buy other companies in order to sell off the most profitable assets of the business and make a profit. To gain economies of scale.
Types of Merger/TAKEOVER
Horizontal: A horizontal merger/takeover is one where two businesses in exactly same stage of production join/merge with one another, for example if two hairdressers joined together. Forward Vertical: A forward vertical merger/takeover is where a business merges with a business at the next stage of the production process, for example a business making furniture may merge with the retail outlet selling the furniture. Backward Vertical: A backward vertical merger/takeover is where a business merges with a...
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