Methods of external growth

Question 1

Mergers

Answer 1

2 companies join together to form 1 company

Motive = synergies (more profitable after merger)

Question 2

Takeover/acquisition

Answer 2

Disney bought pixar

Hostile = buying majority of shares in a plc against the directors will, encourage existing shareholders to sell by offering payment

Agreed = agree to sell the business to them in order to survive

Question 3

Joint venture

Answer 3

M and S, Ocado

Companies set up another business together to share resources

shared distribution channels and an established product range/ brand name

required billions

potential for clash of cultures

Question 4

Horizontal integration

Answer 4

Morrisons bought safeway

Another firm, same industry and same stage of production

Reduces competition and increases market share

Question 5

Forward vertical integration

Answer 5

Buy firms further on in production

Such as manufacturer buying a retailer/supermarket

Control what’s sold and exclude competitors’ products

Question 6

Backward vertical integration

Answer 6

Buying a firm at an earlier stage of production

Ensures supplies aren’t disrupted and are of high quality

Question 7

Conglomerate

Answer 7

Unrelated firms

Could be a product extension (hairbrush and hairspray)

Geographic extension (same industry, different locations)