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  • Organic Vs Inorganic Growth 8b PDF

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    Priyam Mrig
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    There are two main types of corporate growth strategies: organic growth through internal means like expanding facilities, and inorganic growth through external means like mergers and acquisitions. Mergers involve two similar-sized companies combining to form an entirely new joint entity, whereas acquisitions see one company gain control of another. Motivations for mergers and acquisitions include pursuing growth, increasing market power, reducing costs, and gaining access to new markets, technologies, or capabilities. Evaluating cultural fit and ensuring the acquiring company can provide leadership to the acquired entity are important factors for merger success.

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    There are two main types of corporate growth strategies: organic growth through internal means like expanding facilities, and inorganic growth through external means like mergers and acquisitions. Mergers involve two similar-sized companies combining to form an entirely new joint entity, whereas acquisitions see one company gain control of another. Motivations for mergers and acquisitions include pursuing growth, increasing market power, reducing costs, and gaining access to new markets, technologies, or capabilities. Evaluating cultural fit and ensuring the acquiring company can provide leadership to the acquired entity are important factors for merger success.

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    78 views17 pages

    Organic Vs Inorganic Growth 8b PDF

    Uploaded by

    Priyam Mrig
    There are two main types of corporate growth strategies: organic growth through internal means like expanding facilities, and inorganic growth through external means like mergers and acquisitions. Mergers involve two similar-sized companies combining to form an entirely new joint entity, whereas acquisitions see one company gain control of another. Motivations for mergers and acquisitions include pursuing growth, increasing market power, reducing costs, and gaining access to new markets, technologies, or capabilities. Evaluating cultural fit and ensuring the acquiring company can provide leadership to the acquired entity are important factors for merger success.

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    of 17

    Organic vs Inorganic Growth

    Internal Growth Strategies(organic)


    a) Green field expansions.
    b) Brown field expansions

    External Growth Strategies (Inorganic)


    a) Mergers & Acquisitions
    b) Equity alliances
    c) Non equity alliances
    Mergers can be defined as the integration
    of two or more firms on co-equal basis. In
    mergers, firms pool all their resources
    together to create a sustainable
    competitive advantage.

    An acquisition refers to the process of


    gaining partial or complete control of one
    company by another for some strategic
    reasons.
    The Essence of Merger
    The terms "mergers" and "acquisitions" are often
    used interchangeably, although in actuality, they
    hold slightly different meanings. When one
    company takes over another entity, and
    establishes itself as the new owner, the purchase is
    called an acquisition. From a legal point of view,
    the target company ceases to exist, the buyer
    absorbs the business, and the buyer's stock
    continues to be traded, while the target
    company’s stock ceases to trade.
    On the other hand, a merger describes two firms
    of approximately the same size, who join forces to
    move forward as a single new entity, rather than
    remain separately owned and operated. This
    action is known as a "merger of equals." Both
    companies' stocks are surrendered and new
    company stock is issued in its place. Case in point:
    both Daimler-Benz and Chrysler ceased to exist
    when the two firms merged, and a new company,
    Daimler Chrysler, was created.
    In mergers and acquisitions (M&A), the exchange ratio measures the
    number of shares the acquiring company has to issue for each individual
    share of the target firm. For M&A deals that include shares as part of the
    consideration (compensation) for the deal, the sha
    re exchange ratio is an important metric

    Assume Firm A is the acquirer and Firm B is the target firm. Firm B has 10,000
    outstanding shares and is trading at a current price of $17.30 and Firm A is willing
    to pay a 25% takeover premium. This means the Offer Price for Firm B is $21.63.
    Firm A is currently trading at $11.75 per share.
    To calculate the exchange ratio, we take the offer price of $21.63 and divide it by
    Firm A’s share price of $11.75.
    The result is 1.84. This means Firm A has to issue 1.84 of its own shares for every
    1 share of the Target it plans to acquire.
    Successful and unsuccessful Mergers/ Acquisitions
    Rationale for Mergers & Acquisitions

    1. Growth strategy

    2.Increased Market Power

    3. Overcoming entry barriers.

    4. Reduce cost of New Product Development.


    5. Increased speed to market.

    6.Lower Risk compared to developing New Products.

    7.Increased Diversification.

    8.Reshaping the Firm’s Competitive Scope


    Motives for M & A’s in India
    For inorganic Growth

    Increasing the market share


    Acquiring Competence and capability-
    Entering new markets/ product segments

    Access to funds

    Tax benefits
    Reasons for Cross Border M&A

    Growth
    Technology
    Government policy
    Differential labour costs, productivity.
    Sources of raw materials
    Framework for Successful Mergers

    According to Peter Drucker, mergers should


    follow five rules, in order to be economically viable-

    a) The acquirer must contribute something to the


    acquired company.
    b) A common core of unity is required.
    c) The acquirer must respect the business of the acquired
    company.
    d) Within a year or so, the acquiring company must be
    able to provide top management to the acquired
    company.
    e) Within the first year of the merger, management in both
    companies should receive promotions across the entities.
    Deciding between inorganic and organic growth
    Two approaches to M&A

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