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Critically evaluate the benefits and disadvantages of expansion via organic growth versus expansion via acquisition. using real
Finance & Accounting
Pages 6 (1506 words)
Critically evaluate the benefits and disadvantages of expansion via organic growth versus expansion via acquisition using real life case of Tesco to illustrate your answer. Expansion via acquisition has become one of the leading business expansion strategies worldwide, particularly for large size businesses.
This global business related news is encouraging in the context of financial downturn of the year 2008, still casting its shadow on the global growth of large businesses. Luypaert & Huyghebaert (2007) attempt a statistical analysis of the expansion via acquisition strategy becoming a trend, as in 2005 only, 29,585 acquisitions got materialised. Companies prefer to grow and expand through acquisitions rather than organically because it is the quicker way of growth relatively to internal growth as the aimed company is well positioned with its production, distribution and customer base. It also minimises the risk of investing for the increasing growth of the company. Otherwise also, expansion via acquisition could prove to be cost-efficient way out relatively to organic growth, especially when the replacement cost of assets is higher than the concurrent worth of the aimed assets. Another benefit of the expansion via acquisition is that in comparison to organic growth, it can be acquired by paying through the stock as well. It can be a way-out for companies facing cash-crunch or for those companies already deficient in debt power. Literature reveals that during flourishing stock market behaviour, bidding companies prefer to pay for the acquisition through stock. ...
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