3.2.2. Mergers and Acquisitions (Inorganic growth) Flashcards
Define takeover
the process of one business buying another
Define merger
occurs when two or more businesses join together and operate as one
define synergy
the combining of two or more activities or businesses creating a better outcome than the sum of the Indvidual parts
Define integration
the joining together if two businesses as a result of a merger or takeover
define vertical integration
the joining of two businesses at different stages of production
define horizontal integration
the joining of businesses that are in the exact same line of business
define forward vertical integration
joining of a business in the next stage of production
define backward vertical integration
joining with a business in the previous stage of production
define inorganic growth
Inorganic growth involves businesses joining together through a merger and or a takeover
how can a plc be acquired?
by the purchase of 51% of shares by several shareholders
can a ltd be merged or taken over?
if the business asks the shareholders for permission to sell
why do businesses merge/acquire?
to exploit synergies
cheaper to buy than expand itself
gain entry to a foreign market
Increase market share
what are the financial risks?
Competition and Markets Authority can get involved if the deal is out of interest of consumers
Resistance from employees
Bidding wars
Intergration costs like training
what are the financial rewards?
increase profitability
increase market share &EoS
Reward for previous share owners
why do companies need to be cautious when expanding rapidly?
ensure not to drain resources
coping with changes can affect employees
alienation of customers may lose interest due to overlooking customers needs
loss of control
