Although organic growth seems to be the go-to expansion strategy for most businesses, inorganic growth may be what is needed to take organisations to the next level, and achieve fast, sustainable growth.
That is the opinion of experts at Grant Thornton, who suggest that in this fast-paced, technologically advancing world, growing organically may be too ‘safe’. Rather than focusing on a new product range or improved customer service, acquisitions, mergers and take-overs should be considered for larger revenues and profitability.
Martin Kneale, a director at Grant Thornton in the Isle of Man, said: ‘Although undeniably more risky, inorganic growth has proven many times to pay-off. And not just with large multimillion-pound corporations, but for mid-sized businesses too. The key is to pursue an appropriate growth strategy suitable for your organisation, while taking the risks into account, which is of course easier said than done.
‘If we look at acquisition, it has proven itself a highly effective strategy for growth. It’s about acquiring something new, whether it be a new product, technology, know-how, or even just gaining access to something you didn’t have already.’
An example of this is Mortice, an Indian facilities management company, which has successfully completed several acquisitions in Singapore and the UK after raising capital on the London Stock Exchange. It is now worth ten times what it was, is operating in two of the most developed countries in the world, and has the resources to keep growing and gain new customers in different markets.
Martin added: ‘Although this is a success story, acquisition doesn’t come without risk, especially for mid-sized businesses. Unlike large corporates, smaller organisations face the danger of the acquired entity impacting upon their identity. They need to move forward cautiously and have a thorough integration process.’
The specialists at Grant Thornton advise a step-by-step approach for any companies considering inorganic growth.
Martin explained: ‘If acquisition is the best option, short, medium and long-term objectives need to be been defined and suitable targets identified. It is important to then raise awareness that you are looking to acquire, as openly talking about these plans makes it clear you have an active drive to do something.’
Although these growth strategies do come with risk, Grant Thornton urges businesses to make a decision based on logic. Mid-sized businesses relying on organic growth until maturity, and not taking the next logical step for expansion, is arguably more risky than being bold and gaining access to new knowledge, markets and business opportunities through acquisitions, mergers and take-overs.
Photo - Martin Kneale.