Mergers
By: Artur • Essay • 454 Words • February 24, 2010 • 793 Views
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A company or business in the normal course of events will have as a basic objective to grow or expand. Shareholders, directors, employees or even customers and suppliers will demand growth. Growth is an objective that is frequently taken for granted. It is a necessity for the business to expand, to sustain the interest of all stakeholders and enable further opportunities for employees to advance and provide greater challenges. A company that is stagnant will find over a period of time that its employees and shareholders will move where the opportunities are best.
One of the typical questions faced will be whether to grow organically or inorganically? Both come with their attendant benefits and challenges. Till now there has been no universal rule to decide the course. Sometimes, the same company has used both these strategies at different points in time or simultaneously.
Many companies choose to grow through acquisition because it is believed to be a quicker. An acquisition will immediately bring access to additional markets, new products or cash flow. To replicate a new market or product is time consuming and it brings a great deal of uncertainty into the company’s planning. One strong point in regard to acquisitions vis establishment of a similar business is that the purchase of a business will eliminate a competitor in the market. To establish a new business means taking market share from existing players, it is common for new entrants to underestimate the effect of competitive pressure. One way to avoid the pressure is to acquire a business that does not impact on the existing competitive market position.
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