Should Businesses Use Aggressive Forms of External Growth or Hostile Mergers?
Should businesses use aggressive forms of external growth (such as takeovers) or should they rely on less hostile options (such as mergers)?
There are two ways a business can expand, internally (which is also referred to as organic) and externally (which is also referred to as inorganic). In this report, I’m mainly going to be focusing on external growth. Firstly, what is meant by ‘external growth’?
“External Growth is when businesses grow by integrating (joining) with another business.”(Exercise Book) There are also two ways of externally expanding; merging or taking over. “Merging is when two (or more) businesses reach an agreement to join together and operate as one business. It tends to be mutually beneficial to both businesses. A takeover is when one business buys another business. This tends to be more hostile as the buying business is the main one to benefit.” (Exercise Book) Personally, I believe that merging is the better option for businesses to take. Throughout this report, I’ll be providing you with reasons, their evidence and experiences from past mergers and takeovers as to why I believe that merging with another business is the safer and therefore, better option.
One of the reasons as to why I believe merging is the better option is because of its many advantages. A business that has been merged will have most of its expenses reduced. Costs, especially for raw materials are very vital for a company, because they decide how much profit a company can earn. If the price for the raw materials increases anytime during the chain of distribution, the amount of profits a business earns decreases. “A larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities. Merged companies can also share office space and eliminate duplicate manufacturing facilities.”(www.smallbusiness.chron.com) This is very useful because the businesses could sell their former facilities and regain money from what they had and it
There are two ways a business can expand, internally (which is also referred to as organic) and externally (which is also referred to as inorganic). In this report, I’m mainly going to be focusing on external growth. Firstly, what is meant by ‘external growth’?
“External Growth is when businesses grow by integrating (joining) with another business.”(Exercise Book) There are also two ways of externally expanding; merging or taking over. “Merging is when two (or more) businesses reach an agreement to join together and operate as one business. It tends to be mutually beneficial to both businesses. A takeover is when one business buys another business. This tends to be more hostile as the buying business is the main one to benefit.” (Exercise Book) Personally, I believe that merging is the better option for businesses to take. Throughout this report, I’ll be providing you with reasons, their evidence and experiences from past mergers and takeovers as to why I believe that merging with another business is the safer and therefore, better option.
One of the reasons as to why I believe merging is the better option is because of its many advantages. A business that has been merged will have most of its expenses reduced. Costs, especially for raw materials are very vital for a company, because they decide how much profit a company can earn. If the price for the raw materials increases anytime during the chain of distribution, the amount of profits a business earns decreases. “A larger company enjoys greater purchasing power, which lowers the costs of raw materials and other necessities. Merged companies can also share office space and eliminate duplicate manufacturing facilities.”(www.smallbusiness.chron.com) This is very useful because the businesses could sell their former facilities and regain money from what they had and it