Skip to content

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

Alpha plc plans to buy Beta Ltd, a firm in the same industry, expecting that combined annual overhead costs will fall because duplicated head office and distribution functions will be merged. Which motive for the acquisition does this best describe?

The motive is economies of scale, a form of operating synergy. Merging duplicated head office and distribution functions between two same-industry firms lowers combined costs, so the merged firm can operate at lower average cost than the two firms separately.

  1. AEconomies of scale (operating synergy)Correct
  2. BDiversification to reduce unsystematic risk
  3. CAcquiring undervalued assets
  4. DVertical integration to secure supply

Explanation

Combining duplicated functions in two firms in the same industry lowers average unit cost, which is an economy of scale and a form of operating synergy. Diversification would involve unrelated businesses. Vertical integration involves a supplier or customer, which Beta is not.

Did you get it right without looking?

One question tells you little. A timed set on Acquisitions and mergers versus other growth strategies shows your real accuracy, how long you take and where you lose marks.

Practise Acquisitions and mergers versus other growth strategiesFree diagnostic mock

More Acquisitions and mergers versus other growth strategies questions