Q&A - Why are acquisitions so popular as a method of business expansion?

The takeover of one business by another is big business in itself!  Tens of thousands of business advisers (lawyers, accountants, venture capitalists, merchant bankers, PR consultants) spend their lives researching, organising and negotiating acquisitions - earning billions of pounds in fees each year for their services. In the first 9 months of 2010 alone, the value of businesses bought and sold in this way exceeded 2 trillion US dollars.  We know that acquisitions are risky.  So why are they so popular?

When firms choose between the options for pursuing their growth objectives, there are several reasons why acquisitions appear an attractive choice:

• Existing products are in the later stages of their life cycles
• Business lacks knowledge or resources to develop organically
• Speed of growth is a high priority
• Competitors enjoy significant advantages that are hard to overcome

Looking at the history of business acquisitions over recent decades, it is possible to identify a wide range of reasons why they have been made:

- Speed of access to new product or market areas
- Increase market share
- Acquire new skills
- Access economies of scale (perhaps by combining production capacity)
- Secure better distribution
- Acquire intangible assets (brands, patents, trademarks)
- Overcome barriers to entry to target markets
- Defend itself against a takeover threat
- Enter new segments of existing market
- To eliminate competition
- Spread risks by diversifying
- To take advantage of deregulation

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AQA BUSS4 - ‘with reference to *** plc and your own research ....’ [13 May 2012]
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Vodafone takes over Cable and Wireless Worldwide [23 Apr 2012]
6 Essential M&A Cases: BA & Iberia Merge to Form IAG [23 Apr 2012]
BUSS4: 6 Essential M&A Cases [22 Apr 2012]
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Takeovers and Mergers - Cost Synergies in Action at BMI [17 Apr 2012]
Takeovers and Mergers: Facebook & Instagram in News Clips [14 Apr 2012]
ResearchBuster: Acquisitions [8 Apr 2012]
Revision Presentation - Emerging Markets [7 Apr 2012]
BUSS4 M&A - the Benefits of Foreign Takeovers of UK Firms [7 Apr 2012]
IAG bid for BMI receives approval [3 Apr 2012]
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Tata & Jaguar Land Rover - Culture and Strategy [11 Mar 2012]
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Tata and the rise of Jaguar Land Rover [22 Feb 2012]
Takeover insights: Kraft & Cadbury - Justifying the Deal [22 Feb 2012]
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M&A: 8 ways to make a success of a takeover [12 Feb 2012]
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Insights on takeovers and mergers from KPMG’s 2011 global survey [12 Feb 2012]
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The story of a failed takeover - Fred Goodwin, RBS & ABN-Amro [6 Feb 2012]
Takeovers in the UK - the long-term trend [5 Feb 2012]
Cadbury’s Law - Should UK Firms be Protected from Takeover? [2 Feb 2012]
Mastering the art of merger integration [1 Feb 2012]
BUSS4 research - some initial ideas [31 Jan 2012]
BUSS4 2012 - Mergers and Takeovers on the Business Studies Blog [31 Jan 2012]
The Guardian on Takeovers and Mergers [31 Jan 2012]
Strategic choice: What should Facebook do with cash from the IPO? [30 Jan 2012]
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Consolidation on the cards as IAG claims deal to acquire BMI [6 Nov 2011]
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Nestle and Diversification - Investing in Healthcare [25 May 2011]
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Whitbread goes for organic growth [2 May 2011]
Horizontal integration in action - Virgin grabs Esporta [26 Apr 2011]
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Change management - Kraft and Cadbury One Year On (FT) [14 Mar 2011]
CSR becomes the Strategy for Co-operative [5 Mar 2011]
External growth - Diageo on the acquisition trail [21 Feb 2011]
Takeovers: What happens next? [16 Feb 2011]
Cadbury and Kraft One Year On - Culture and Change [12 Feb 2011]
Q&A - Why do acquisitions often fail to deliver acceptable returns? [28 Dec 2010]
Q&A - What is meant by “synergy” in the context of a business acquisition [28 Dec 2010]
Q&A - Explain what is meant by acquisitions or takeovers [21 Dec 2010]
Q&A - Explain “organic” or internal growth [21 Dec 2010]
Q&A - How can the expansion of a firm be measured? [21 Dec 2010]
Growing market share by stealth?  Tesco and One Stop [17 Dec 2010]
Nestle completes takeover of Jenny Craig’s - great synergies??? [15 Dec 2010]
Kraft’s CEO on why it bought Cadbury’s [22 Oct 2010]
Google, Profits and Diversification [16 Oct 2010]
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Lesson Worksheet - Business Growth Basics [29 Sep 2010]
Strategy in Action: “Buying Growth is Not a Strategy” [20 Sep 2010]
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External growth strategy - takeovers back in fashion for large UK firms post recession [29 Aug 2010]
Kraft’s Cadbury takeover triggers management exodus [26 Jul 2010]
Is the mega-merger falling out of fashion? [7 Jun 2010]
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Strategy Case Study - Asda Nets Netto [28 May 2010]
BUSS4 - A Clash of Two Cultures [16 May 2010]
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AQA BUSS4 Section B Practice Question - ITV & News Corp [7 Feb 2010]
AQA BUSS4 Section B Practice Question - Royal Bank of Scotland [7 Feb 2010]
Stakeholders in action - the Bournville demonstration [28 Jan 2010]
Teaching strategy - Cadbury and why takeovers rarely work [24 Jan 2010]
Reflections on the ‘Worst Deal in History’ – and the Best [6 Jan 2010]
What’s behind the BA and Iberia Merger? [19 Nov 2009]
Could mergers come back into fashion? [25 Sep 2009]
A Takeover with a Difference [24 Sep 2009]
Revision Presentation - Acquisitions [9 Sep 2009]
Video case study - Rebranding acquisitions [1 Jun 2009]
How to buy a £1 for 60p [1 Oct 2008]
Lining up a Buyer for Bradford & Bingley [22 Sep 2008]

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