Showing posts with label external growth. Show all posts
Showing posts with label external growth. Show all posts

Monday 18 January 2010

External Form of Growth: Could your business benefit from these?

Business can grow by:
  • Internal growth:  By paying attention to the internal affairs of the company, and diversifying into new products and new markets. 
  • Go-it-alone option
  • External growth:  Through mergers and acquisitions.

EXTERNAL FORMS OF GROWTH

Could your business benefit from an acquisition or a merger?

Again, you need to take a good look at the business to understand just where it is at the present time. 
  • What are the strengths that you can build on? 
  • What do you have that would make your company attractive to other companies? 
  • Are there areas of weakness in the business? 
  • Could these be strengthened by acquiring another company or merging your business with another?


SOME OF THE QUESTIONS TO ASK ARE:
  1. Should we obtain more quality staff with different skils?
  2. What do we know about our sector of the industry or service?  Could we improve our business intelligence to our advantage?
  3. Is our business underperforming and, if so, in which area(s)?
  4. Can we access funds for further development without endangering the normal business cash flow?
  5. Could we access a wider customer base and increase our market share without outside help?  How much would it cost in extra resources?
  6. Could we diversify into other products or service areas?  What would be the long-term effects?
  7. Can we reduce our cost and overhead structure without damaging our product, service, or customer base? Would there be an adverse effect on performance and quality?
  8. What would be the effect if we could reduce the competition?
  9. Would "organic growth" take too long?
The answers to the above questions will be a good guide to future planning of the business.  But a lot depends on how the management team sees the future of the company.


FACTORS TO CONSIDER

So what would be the reasons for considering growth either through a merger or by an acquisition?
  1. Bigger is better?
  2. Image enhancement?
  3. Market expansion?
  4. Product range expansion?
  5. Diversification? 

Among the forms of external growth are:
  1. Mergers
  2. Acquisitions
  3. Joint ventures
  4. Partnerships
  5. Collaborations

External growth - Merger

What is a merger?

The dictionary definition of a merger in the business or commercial context is "the combination of two or more companies, either by the creation of a new organization or by absorption by one of the others." 

The underlying logic of mergers is that the resulting enterprise will be stronger than the combined resources of the individual companies.  This is described as synergy, and it offers more business possibilities.  It also has the advantage that there will be less competition as a result of the merger, although this depend on the guidelines of a monopoly commission.

WHAT ARE THE MAJOR ATTRIBUTES OF A TRUE MERGER?

1.  TEAMWORK
2.  SHARING
3.  NONDOMINATION
4.  MUTUAL BENEFIT


THE FINANCIAL STRUCTURE FOR A MERGER IS:

Company "A" Shares ----->  COMPANY "C" SHARES

Company "B" Shares ----->  COMPANY "C" SHARES


IS THE TIME RIGHT FOR A MERGER?

Ascertaining whether the time is right for a merger depends on the state of your business relative to the market and to the competition.