3.2.2 - Mergers and Takeovers Flashcards
What is a merger?
Two businesses join together for mutual benefit
What is a takeover?
One business acquires
another along with all its assets
- Hostile or voluntary
Reasons for a merger or takeover?
- Economies of scale
- Synergies
- Elimination of competition
- Access to new markets
What is a horizontal merger?
Merging with a
business in the same
level of supply chain
- Coffee shop merges with another coffee shop
Advantages and disadvantages of horizontal merger
+ Rapid increase in market share
+ Economies of scale
+ Reduces competition
+ New knowledge and expertise
- Diseconomies could occur
- Culture clash
What is forwards vertical merger?
Taking over a customer
- Booker buying a Londis convenience store
Advantages and disadvantages of forwards vertical merger
+ Better access to market information
+ Higher profit margins
+ Producer can determine
how products are
promoted and build
relationships with
consumers
- Culture clash
- Potential regulations
What is backwards vertical merger?
Taking over a supplier
- Coffee shop taking over bean supplier
Advantages and disadvantages of forwards vertical merger
+ Materials for cost price
+ The quality of raw materials can be controlled
+ Greater control
- High costs
- Culture class
- Less expertise
What is a conglomerate?
Taking over a business in a different market
Advantages and disadvantages of conglomerate
+ Instant growth
+ Less risk
+ Greater profitability
- More regulation
- Culture clashes
What are some financial risks of inorganic growth?
- Overpayment
- Intergation could be costly
- Culture clashes could limit productivity
- Regulations
- May have debts
What are some financial rewards of inorganic growth?
- Increased market share
- Synergies
- Diversification
- Access to New markets
What are the issues of rapid growth?
- Strain on cash flow
- Diseconomies of scale
- Culture class
- Quality control issues
- Customer service issues
