Become familiar with external growth within a business in relation to the activities, methods, directs and benefits of external growth.
Start by establishing the subject of mergers and takeovers by asking students if they know of any companies that have been merged or taken over and whether anything changed about the companies. Make a list of examples with the class.
For a more intense learning game, divide the topic into four subjects (such as mergers, take overs, growth direction and external growth advantages).
Growing a business isn’t just about building up staff and production, finding new markets and looking to increase profits internally.
It can also include joining forces with other businesses in what is known as External Growth.
This can, however, be carried out as part of an agreed Merger or a Takeover.
A merger – otherwise known as an amalgamation – sees a minimum of two companies agreeing to join together to work with each other as a team and share resources as one large company that will use:
• Combined premises
• Combined products
• Combined equipment
• Combined staff
A takeover sees one company buying control of another to have complete power over the new, merged entity.
Whereas amicable takeovers are welcomed by the company being bought, a hostile takeover is one that company management tries to block by persuading its shareholders not to sell.
Takeovers provide growth in the following ways:
• New premises
• New products
• New equipment
• New staff
ADVANTAGES OF MERGING WITH OR TAKING OVER ANOTHER BUSINESS
When speed is of the essence, a merger or acquisition can be the order of the day. This is because whatever assets you need, be they factories or staff, can be bought a lot quicker than they can be built.
Why buy an asset such as a manufacturing plant when it would be cheaper to buy the majority of shares for the company itself? This often becomes an opportunity when a publicly held company’s poor performance cheapens the share price.
Taking over or merging with the competition can nullify a rival threat (boosting sales), create access to their brands and products, and increase the loyalty of customers to your own brand at the same time.
DIRECTIONS OF EXTERNAL GROWTH
Growth direction refers to the way the market relationship between businesses affects the investing company as it grows.