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MERGER AND ACQUISITIONS
Growth is Crucial
Increased competition, an inevitable result of a market's potential for profits, causes firms to cut prices in order to maintain sales. Provided that a firm's marginal costs remain the same, productivities are stagnant, and sales levels are maintained as a result of price cuts, lower prices will directly affect profitability. Thus, in order to increase profitability, growth is imperative. Inherent in the nature of expansion, new opportunities are available for capitalization. These include the firm's entry into new markets and ventures, thus achieving a level of diversification that mitigates the risk resulting from the acute concentration of resources.
Organic v. Acquisition
Business growth can be broadly divided into two schools: organic and acquisition. Organic growth represents a firm's natural expansion as its businesses gradually develop and increase in scope. Microsoft's rise to the top of the software industry exemplifies organic growth. Acquisition growth is a more rapid vehicle that achieves growth through the purchase and integration of existing firms. Acquisition represents a breadth of complex financial vehicles offering firms multitudes of growth opportunities. The quickness and flexibility that results from various forms of acquisition has revolutionized the way businesses think about strategy, and achieving corporate development. As an investment vehicle acquisition's strengths have given birth to its weaknesses. For example, acquisition growth's versatility has created a wide breadth of diverse applications. The increasing sophistication of these uses has manifested itself in firms' seeming lack of understanding of acquisition.
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