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

Zentra plc is deciding between building a new regional distribution network itself (organic growth) and buying an existing distributor. Which of the following is generally a recognised advantage of organic growth over acquisition?

Organic growth avoids paying a control premium and lets management control the pace and nature of expansion, and it avoids integration problems. Immediate market share and fast entry are advantages of acquisition, not of building capacity internally, which is usually slower.

  1. AIt gives immediate access to the target's customer base and market share
  2. BIt avoids paying a control premium and lets the firm control the pace and nature of expansionCorrect
  3. CIt removes the risk of overpaying through winner's curse and also gives faster entry into the market
  4. DIt provides immediate cost synergies from combining operations

Explanation

Organic growth is financed from internal resources, avoids a control premium and integration problems, and allows the pace and type of growth to be controlled. Immediate market share and speedy entry are advantages of acquisition. Option 3 is wrong because organic growth is typically slower, not faster.

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