One of the important decisions that companies should make is which growth strategy to use. There are two fundamental strategies for the growth of companies. Organic growth is one of these strategies. If a company grows using its own resources, without resorting to mergers and acquisitions, it aims to grow organically. Growth with new products, growth by establishing new brands and growth by increasing the number of branches are examples of organic growth. The other growth strategy is inorganic growth. If a company grows by merging with or acquiring other companies, then it is growing inorganically. Examples of different inorganic growth strategies are the acquisition of a competitor to increase market share or the acquisition of a supplier to increase integration.
Both growth strategies have advantages and disadvantages. The biggest advantage of organic growth is that you can grow your company in line with your own vision. This way you can focus completely on your goals. In the process of organic growth, as company management, you have more control over the details of the company compared to inorganic growth. Additionally; As there is no merger and integration process in organic growth, you are less likely to experience problems with goals and sustainability. One of the disadvantages of organic growth is gradual growth. In organic growth, the company cannot achieve rapid growth as it grows with its own equity. This can sometimes create serious problems for the company. For example, you may stay behind in sectors where competition is rapidly increasing or you may lose your market share because you are growing slowly. Moreover, it is very likely that your resources will not be sufficient to reach your goals after a time.
The major advantage of inorganic growth is rapid growth. Firms with surplus cash or the possibility of finding easy debts will also have the opportunity to grow rapidly and cheaply by buying firms that have growth potential but need capital to grow or have already reached a certain size but have fallen into cash shortages for any reason.
If the right decisions are made in the merger and acquisition process, inorganic growth is much more successful than companies that are successful in organic growth. Thus, you can achieve a very rapid increase in your market share, gain a competitive advantage in your favor and expand your customer mass. Another advantage of inorganic growth is that you have the opportunity to apply the know-how of the company you buy to your own company. Especially for technology companies, this qualification becomes more prominent. Mergers also provide great advantages in increasing the credibility of companies. In addition to this, inorganic growth has its disadvantages, too. The leading one is the cost of prepayment. That is, buying a company that is already on the market is often costly. In this case, there is an important decision to be made between the money that will be spent to buy the company and the time and money that will be spent to build the company from scratch. In addition, management problems are frequently encountered in mergers and acquisitions. In the merger, the decrease in the authority of the owners and the integration of the two companies cause these problems.
As a result, having a market share, growing rapidly and not staying behind the competition has gained great importance. Therefore, interest in inorganic growth strategy is increasing and more companies are growing through mergers and acquisitions. The acquisition of Careem by Uber and the acquisition of WhatsApp by Facebook are a few examples of the increasing trend of inorganic growth in companies with large capital.
The figures regarding the direct investment made by foreigners in our country give the idea that there is an inorganic growth trend. According to reports prepared by Deloitte; the total value of mergers and acquisitions that took place in Turkey in 2016, 7.3 billion dollars, 10.3 billion dollars in 2017 and $ 12 billion in 2018. Foreign investors made investment $ 3.8 billion, $ 5.5 billion, and $ 7.6 billion depending on years respectively.1 These figures show an increase both in total mergers and acquisitions and in investments made by foreigners. In addition to the data to support the trend in our country, cross-border mergers and acquisitions transactions reached 125.1 billion US dollars in the developing countries including Turkey increasing by 55.3%. The magnitude of the increase proves the increasing popularity of mergers and acquisitions in developing countries.
If you take the right consulting support, you can merge with the right company or buy the right companies. In this way, you can catch up with the inorganic growth trend and complete the post-acquisition process in a healthy way without any probable problems such as integration, the difference in corporate culture and regulation of the financial system.
1Deloitte Reports: https://www2.deloitte.com/tr/tr/pages/mergers-and-acquisitions/topics/merger-and-acquisition-services.html?icid=top_merger-and-acquisition-services
