Types of Growth Flashcards
What are the two types of growth?
Internal (organic) and External (mergers and acquisitions)
What are the pros of internal growth?
No Principal Agent Problem
No selling equity
What are the cons of internal growth?
Long
Slow
Firms stay relatively small
What’s a merger?
When two firms come together, usually friendly
What’s an acquisition?
When one firm takes over another, usually hostile
What types of external growth are there?
Horizontal
Vertical
Conglomerate
What are the pros of external growth?
Increase in revenue
Increase in profit
Increase in market share
Reduction in costs
Reduced competition
Expansion to new markets
What are the cons of external growth?
Principal Agent Problem
Risky
Costly
Unlikely to achieve objectives
What’s the most risky type of external growth?
Conglomerate, as you have no knowledge
What’s the least risky type of growth?
Horizontal, as you have synergy
What’s synergy?
Where the whole is greater than the sum of its parts.
Why do most mergers and acquisitions fail to achieve the original objectives?
No synergy between firms
Cost overruns
Principal Agent Problem
Clash of cultures
Intervention by the CMA
