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Companies grow one of two ways: Through M&A or through organic growth.
The former is characterised by a small company merging or buying out
another company with complementing services/products. An example of
this is when PaineWebber acquired the Union Banque of Switzerland
(UBS). An example of organic growth is the way that Google, for the
most part, grew to become a $100+B company as measured by market
capitalization.
What are the advantages/disadvantages/characteristics of growing in
these two ways?
I would think that growth by acquisition leads to:
1. Temporary disorganization of alligning 2 disparate proccesses,
systems, management styles, and other factors.
2. May lead to shoddier products. These products are not as
streamlined or monolithic. Of course, if this were a consulting firm,
then this downturn in performance is not existent.
3. This creates to one company (or both for that matter) to incur a
lot of debt. This weakens the financials of one or more of the
companies involved.
I would think that organic growth is more desirable because: It is
financially more healthy to do so, and the products/services are more
"monolithic" and streamlined.
Brablo wrote on 12/15/06 10:46 AM:
> I would think that growth by acquisition leads to:
> 1. Temporary disorganization of alligning 2 disparate proccesses,
> systems, management styles, and other factors.
> 2. May lead to shoddier products. These products are not as
> streamlined or monolithic. Of course, if this were a consulting firm,
> then this downturn in performance is not existent.
> 3. This creates to one company (or both for that matter) to incur a
> lot of debt. This weakens the financials of one or more of the
> companies involved.
Warren Buffett may disagree with you.......
Blash wrote:
> Brablo wrote on 12/15/06 10:46 AM:
>
> > I would think that growth by acquisition leads to:
> > 1. Temporary disorganization of alligning 2 disparate proccesses,
> > systems, management styles, and other factors.
> > 2. May lead to shoddier products. These products are not as
> > streamlined or monolithic. Of course, if this were a consulting firm,
> > then this downturn in performance is not existent.
> > 3. This creates to one company (or both for that matter) to incur a
> > lot of debt. This weakens the financials of one or more of the
> > companies involved.
>
> Warren Buffett may disagree with you.......
And so may I
"Brablo" <g...@y...com> wrote in message
news:1166197584.119499.181030@79g2000cws.googlegroup
s.com...
> Companies grow one of two ways: Through M&A or through organic growth.
> The former is characterised by a small company merging or buying out
> another company with complementing services/products. An example of
> this is when PaineWebber acquired the Union Banque of Switzerland
> (UBS). An example of organic growth is the way that Google, for the
> most part, grew to become a $100+B company as measured by market
> capitalization.
>
> What are the advantages/disadvantages/characteristics of growing in
> these two ways?
>
> I would think that growth by acquisition leads to:
> 1. Temporary disorganization of alligning 2 disparate proccesses,
> systems, management styles, and other factors.
> 2. May lead to shoddier products. These products are not as
> streamlined or monolithic. Of course, if this were a consulting firm,
> then this downturn in performance is not existent.
> 3. This creates to one company (or both for that matter) to incur a
> lot of debt. This weakens the financials of one or more of the
> companies involved.
>
> I would think that organic growth is more desirable because: It is
> financially more healthy to do so, and the products/services are more
> "monolithic" and streamlined.
>
Some industy's organic growth may only be 1-4% a year, such as those who's
growth is tied to the population growth.
704set
Blash wrote:
> Brablo wrote on 12/15/06 10:46 AM:
>
> > I would think that growth by acquisition leads to:
> > 1. Temporary disorganization of alligning 2 disparate proccesses,
> > systems, management styles, and other factors.
> > 2. May lead to shoddier products. These products are not as
> > streamlined or monolithic. Of course, if this were a consulting firm,
> > then this downturn in performance is not existent.
> > 3. This creates to one company (or both for that matter) to incur a
> > lot of debt. This weakens the financials of one or more of the
> > companies involved.
>
> Warren Buffett may disagree with you.......
What Buffet looks for is that the acquisition makes sense for the
business. In particular he likes the acquisition to remain within the
company's core business model, and provide some siginificant strategic
benefit. There is no easy intellectually lazy autopilot answer for the
organic growth vs acquisition question.
Awaken21 wrote on 12/16/06 10:59 AM:
> Blash wrote:
>> Brablo wrote on 12/15/06 10:46 AM:
>>
>>> I would think that growth by acquisition leads to:
>>> 1. Temporary disorganization of alligning 2 disparate proccesses,
>>> systems, management styles, and other factors.
>>> 2. May lead to shoddier products. These products are not as
>>> streamlined or monolithic. Of course, if this were a consulting firm,
>>> then this downturn in performance is not existent.
>>> 3. This creates to one company (or both for that matter) to incur a
>>> lot of debt. This weakens the financials of one or more of the
>>> companies involved.
>>
>> Warren Buffett may disagree with you.......
>
> What Buffet looks for is that the acquisition makes sense for the
> business. In particular he likes the acquisition to remain within the
> company's core business model, and provide some siginificant strategic
> benefit. There is no easy intellectually lazy autopilot answer for the
> organic growth vs acquisition question.
>
Look at http://www.marmon.com/Companies.html
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