External (inorganic) growth
Mergers and takeovers
External growth (inorganic growth) usually involves a merger or takeover. A merger occurs when two businesses join to form a new (but larger) business. A takeover occurs when an existing business expands by buying more than half the Financial stakes in a company or business. of another business.
An example of a merger
Business ‘A’ and Business ‘B’ each want to expand but do not feel they can get any bigger alone. The two businesses decide to come together and share their locations, stock, marketing, A product is a good or service that is sold to customers or other businesses. and staff. This allows them to grow together as a single business.
An example of a takeover
Business ‘A’ decides it wants to grow but the area it wants to grow into is already occupied by a similar or smaller business; called Business ‘B’. Business ‘A’ decides to buy over 50% of the shares in Business ‘B’ in order to take control. This gives Business ‘A’ access to growth through ownership of a new business in either the same or a different area of the market.
The four merger and takeover methods
There are four methods through which a business can merge with or take over another business.
Image caption, Horizontal integration occurs when two competitors join through a merger or takeover. The new business then becomes more competitive and increases its market share. This gives it more control when negotiating and setting prices.
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