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In todays over competitive world the companies are striving hard not only to survive but also to grow and compete successfully. All the organizations have growth as their major goal. In order to capture a larger market share, to attract more and more customers, to expand globally and to provide better then the competitors the organizations need to grow. With the growth new projects can be launched and implemented, better opportunities can be availed thus increasing the chances to succeed and enhance the financial health of the organization. Although growth is a natural process but at times the organizations take various measures to create growth. Many organizations nowadays are undergoing mergers, are taking acquisitions and are going public in order to increase their assets and funding thus paving a path for their growth. Through this paper we’ll discuss the given three options in regard to a virtual organization. Furthermore, we’ll conduct a SWOT analysis for each option.
Mergers take place when an organization combines with other in order to strengthen itself and increase its assets and funding. The company tends to become strong in regard to its finances, logistics and the smaller company can gain recognition. In today’s very advanced and over competitive world mergers are becoming common day by day. Usually in case of mergers both the companies are benefited but it is always required that the decision regarding the merger must be made with too much concentration and efforts keeping all the pros and cons in view. For this purpose, sufficient research is required in order to gather as much data possible. Once you have ample data present with you then undergo the merger.
A number of benefits are associated with merging. In order to expand and to increase the assets plus the finances merging is the best opportunity. When two companies merge, they tend to share each other’s strength. Merger is a cost effective and cheap in contrast to acquiring a competitor. Besides sharing the tangible assets, the companies also share ideas, their goodwill and become strong enough to be recognized as one strong brand. Mergers also help the smaller companies to get extra and immediate credits. Our virtual organization Berry Bug which is a bug control company can undergo merger with a larger pesticide company and enjoy all the benefits in regard to resources and tools and techniques. Merger is beneficial for Berry Bug as it will enhance its strengths and will help it in getting hold on the regions where it is already not present.
Besides strengths the companies undergoing mergers at times have to face various weaknesses. in case of merger the smaller or the weaker company loses its identity and the people only tend to see the one strong company. but Berry Bug will try its best to avoid this situation it will tend to maintain its recognition and existence. Second weakness is in regard to communication. At times in mergers the companies are not able to communicate properly which give rise to numerous problems.
As far as opportunities are concerned mergers are able to come up with more and more opportunities. Through mergers the companies share with each other thus providing the opportunity to overcome their weaknesses and to re-organize and correct any shortcomings. Furthermore, a small company like Berry Bug can collaborate with a competitor in order to increase its profits by getting hold on the areas which were not possible to be taken previously. This type of a merger is known as horizontal merger.
In case of mergers a number of threats are also present but the companies should keep their eyes and minds open and try to avoid or face these threats courageously together. These threats could be visible or invisible. Mostly when undergoing a merger the companies tend to lose their identification and stop doing what they used to do in fact tend to rely on the capabilities of others. Berry Bug will make all the efforts to maintain its identity and actively participate with its collaborator. Another threat which companies may face is regarding any rumors or negative talks. These can destroy the morale and the reputation of the companies.
An acquisition is a second way which helps the organizations to grow. According to Investopedia, (2009, p. 2) when one company takes over the other and becomes the owner of the acquired company acquisition occur. The smaller company loses its identity and the larger tends to swallow all of its business. By taking acquisitions the company tends to takeover the other thus finishing its identity and recognition. It may seem similar to merger but this is the difference in them. Mergers allow the companies to combine but they allow both the companies to work with their own identification whereas in case of acquisitions the company which takes over tends to have the hold on everything. According to Pickering (2007) it will be suitable to undergo acquisition in case of Berry as the time required will be less and it can start expanding quickly. It can acquire another company and can increase its assets, can enhance its ideas can increase its property, can also increase the number of customers. Berry can utilize all this to serve better to its existing customers as well as for the new customers.
There are also a number of weaknesses associated with the process of acquisition. If Berry decides to take over a company it must thoroughly conduct research that the company is not facing any legal or financial issues which may become a problem for Berry at later stages. Secondly there will be lesser chances to find a company to acquire with a good rapport and somewhat better financial position. The last but not a least factor which should be taken care of is the cost which is associated with the acquiring. Cost is usually high in case of acquisitions, Berry must see from all aspects that whether it is worthwhile to acquire the company or not.
When conducting a SWOT analysis of the different approaches the opportunities and threats related to acquisition cannot be missed out. The opportunities of acquisition are similar to its strengths. According to Malott, (2001) the major opportunity associated with acquisition is the enhancement in profitability, customers, brand recognition, assets whereas the threat is the high cost and usually too much time required. Furthermore, in case of acquisitions maybe the employees of the acquired company do not agree with this approach and they might show resistance in doing so. There may also be issues related to personnel and accounts and it might take time to overcome these problems. The employees of the acquired company may not feel satisfied or comfortable with the new culture and this may give rise to resistance and may reduce morale.
The third approach for growth is to offer Initial Public Offerings and this approach is the least appropriate one. IPOs are basically formed when the organizations stocks or shares are offered to the common public. For Berry this is not a good option because in this case the financial information of the company has to be shared with the shareholders. Although sharing information or exposing information is not at all easy but still there are few benefits related to IPO’s. By offering the stock publicly the companies can get finance and funds quickly and in a cheaper way. The IPO’s have better opportunities to attract better minds as employees and better investors to invest. By becoming an IPO a number of finance opportunities are also created. Since Berry is looking forward to expand it can analyze the benefits related to IPO’s. Stocks are very unpredictable in regard to their prices. Their prices are affected by a number of factors which may or may not be controllable therefore no matter fund raising is easy it is too risky.
By looking into detail in all the approaches Berry Bug will have to decide very wisely that it should adopt which approach in order to expand and grow. I think for Berry merger will be the best option as it can maintain its identity by even collaborating with another company. It can enjoy the benefits of increased assets, customers and more area to serve by undergoing a merger. Secondly it is also cost effective and will be beneficial for Berry Bug. As far as acquisition is concerned Berry can undergo this approach but I think that it is too costly and secondly there will be a chance that because of acquiring another firm Berry may also acquire problems and issues related with it. The last option is IPO which is no doubt cheap but this involves risk as the prices of the stocks are unpredictable. Secondly sharing or exposing the financial information to the outsiders is also not an easy task. Therefore, whatever decision Berry takes it should be well thought with sufficient information on hand and all the pros and cons well measured.
Investopedia (2009). Mergers and Acquisitions. Retrieved from http://www.investopedia.com/university/mergers/
Malott, T. G. (2001). Building value through strategic acquisitions. San Diego Business Journal, 22(49), 20.
Pickering, M. (2007, March). The urge to merge. In the Black, 77(2), 68-69.
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