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ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies

Aldon plc is comparing three growth routes for a new product market: organic growth, a joint venture and a full acquisition. Management wants to limit capital outlay, share risk and gain local knowledge, accepting shared control and shared profits. Which route best meets these objectives, and what is its key drawback?

A joint venture best meets the objectives because it limits capital outlay, shares risk and provides local knowledge through a partner. Its key drawback is that control and profits are shared, which can lead to conflicts between partners over strategy and decisions.

  1. AJoint venture; shared control may lead to conflicts and profit sharingCorrect
  2. BFull acquisition; high price and integration risk are its only drawbacks, while control is shared
  3. COrganic growth; it is fastest and requires least capital
  4. DFull acquisition; it limits capital outlay because the target funds itself

Explanation

A joint venture shares cost, risk and local expertise, at the expense of shared control and profits and possible partner conflict. A full acquisition needs large capital and gives full, not shared, control; organic growth is slow.

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