Inorganic growth occurs when your company merges with others in some form, creating an operation that is larger than the sum of its parts. Your company expands through this union rather than solely through its regular business activities.
Organic growth, on the other hand, is the day-to-day growth generated by your company’s existing operations in the market.
The immediate advantage of inorganic growth is speed. While your company can certainly grow on its own, it is constrained by its own pace, resources, and market conditions.
Inorganic growth provides an accelerated boost to the businesses involved. It acts as a growth enhancer and accelerator, reducing the time curve for business expansion and development.
What are inorganic growth strategies?
These are methods companies use to rapidly expand through external means, rather than relying solely on internal organic growth. The most common form of inorganic growth is M&A (mergers and acquisitions). A merger occurs when two companies combine to form a new entity, whereas an acquisition involves one company purchasing another.
Asset purchases are also common, where a company acquires specific assets from another, avoiding unwanted liabilities.
Another strategy is reverse mergers, where a private company acquires an existing public company, gaining access to capital markets without going through the traditional initial public offering (IPO) process.
How does M&A enable company growth?
It facilitates entry into new markets and expands the customer base, which would be much slower and costlier through organic growth alone. Additionally, these strategies enable the acquisition of new technologies and competencies that can be integrated into existing operations, enhancing efficiency and innovation.
Another significant benefit of M&A is financial stability. By joining forces with another company, organizations can share resources and reduce operational costs, thereby increasing profitability. Merging companies can also substantially increase shareholder value, as the new entity formed is typically more robust and diversified.
Moreover, M&A can help struggling companies restructure and regain their market position. Acquiring specific assets instead of shares allows companies to choose the assets and liabilities they wish to acquire, minimizing risks and avoiding unwanted liabilities.
Is it suitable for all companies? Yes and no
In theory, any company can merge with another to grow, but in practice, the conditions of your company or potential partners may not result in a sum that exceeds the parts (where 1+1 equals more than 2). In such cases, it may not be worthwhile.
However, when the sum does exceed the parts, it is undoubtedly worth considering.
Mergers and acquisitions are the classical instruments of inorganic growth. You buy someone, merge with someone, or someone buys you — alternatives that every entrepreneur and company should keep in mind, especially in times like these, when waiting for your company to grow organically at its own pace might mean falling behind in a world and economy that accelerate every day.
Inorganic growth. Think about it.
Pipeline Capital is the ideal advisor to drive your company’s inorganic growth through M&A strategies. With expertise in Buy Side, Sell Side, Funding, Cross Border, Venture Capital and Scale Ventures, Pipeline offers customized solutions that ensure the rapid and efficient expansion of your business. Get in touch to discover how we can turn your growth ambitions into reality.
Text by Pyr Marcondes, Senior Partner at Pipeline Capital.
Read more articles about business growth:
- Humanized companies are more profitable
- When to expand my business?
- Using M&A to enter new markets or acquire new technologies
- Digital transformation: How M&A is guiding traditional companies to innovation
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