I don't think it is so straightforward where you can just off-hand decide whether organic or inorganic growth is better. There are different conditions and timeframes which may make either form of growth better.
Organic growth may be better for companies that are still growing since they need to develop a business model and value proposition which is both defensible and scalable. Such growth usually takes time and understanding of the market, and cannot be bypassed so easily.
But there are some drawbacks of concentrating solely on organic growth.
Firstly, some of the growth faced by certain companies are too slow, such that they may not be able to compete with their peers or generate enough cashflow to survive. This may be the case usually for start-ups, like Seedly, who need to scale as quickly as possible but still require cashflow to operate and grow. In such scenarios, being acquired by Venture Capitalists or Private Equity firms can provide the cashflow needed. For these investors, these acquisitions provide extremely high potential returns if the acquired companies can be sold off or IPO, or they are paid dividends from these companies.
Secondly, organic growth may not make sense if another competitor has already developed a certain niche or entered a certain market, and you try to compete in this area as well. In such circumstances, time and resources can be saved by strategically acquiring such companies, which elimates competition but also provides you with the resources and markets that your competitors have.
Other than these 2 advantages of inorganic growth, mergers & acquisitions can also make use of revenue and cost synergies. For example, merging 2 companies can lead to cost savings, where certain operations can be leaned down. Combining certain product lines, or Intellectual Property can lead to increased revenue. One nerd example, is how Disney's acqusition of Fox was to make use of Fox's rights of X-men and Fantastic 4 characters, so that they can integrate these characters into the Avengers Franchise (This why X-men characters didn't appear in the Avengers).
A few potential issues with inorganic growth is that it's not very sustainable. Such growth is often very expensive (even if you issue stocks), and for some companies, taking on debt to purchase another company can be risky. Eventually, you will need your portfolio of businesses to grow and survive.
Merging two companies can also be complicated due to different company culture and business practices. Employees on both ends may take some time to adjust to the new conditions. There can also be an overall decrease in morale, with many employees leaving the company, because they can't adapt to such changes, especially the older employees in senior management.
Laying off employees in the bid to streamline costs can be also be problematic. Employees tend to be more frightened of who might be laid off, leading to the overall morale dropping as well.
Private Equity firms who buy up other companies may also be guilty of squeezing such firms for dividends, or end up cutting costs too aggressively so as to improve their profitability. This was what happened to Kraft Heinz, where the firm who acquired them cut down too much R&D costs which led to their products not adapting with the times.
I don't think it is so straightforward where you can just off-hand decide whether organic or inorganic growth is better. There are different conditions and timeframes which may make either form of growth better.
Organic growth may be better for companies that are still growing since they need to develop a business model and value proposition which is both defensible and scalable. Such growth usually takes time and understanding of the market, and cannot be bypassed so easily.
But there are some drawbacks of concentrating solely on organic growth.
Firstly, some of the growth faced by certain companies are too slow, such that they may not be able to compete with their peers or generate enough cashflow to survive. This may be the case usually for start-ups, like Seedly, who need to scale as quickly as possible but still require cashflow to operate and grow. In such scenarios, being acquired by Venture Capitalists or Private Equity firms can provide the cashflow needed. For these investors, these acquisitions provide extremely high potential returns if the acquired companies can be sold off or IPO, or they are paid dividends from these companies.
Secondly, organic growth may not make sense if another competitor has already developed a certain niche or entered a certain market, and you try to compete in this area as well. In such circumstances, time and resources can be saved by strategically acquiring such companies, which elimates competition but also provides you with the resources and markets that your competitors have.
Other than these 2 advantages of inorganic growth, mergers & acquisitions can also make use of revenue and cost synergies. For example, merging 2 companies can lead to cost savings, where certain operations can be leaned down. Combining certain product lines, or Intellectual Property can lead to increased revenue. One nerd example, is how Disney's acqusition of Fox was to make use of Fox's rights of X-men and Fantastic 4 characters, so that they can integrate these characters into the Avengers Franchise (This why X-men characters didn't appear in the Avengers).
A few potential issues with inorganic growth is that it's not very sustainable. Such growth is often very expensive (even if you issue stocks), and for some companies, taking on debt to purchase another company can be risky. Eventually, you will need your portfolio of businesses to grow and survive.
Merging two companies can also be complicated due to different company culture and business practices. Employees on both ends may take some time to adjust to the new conditions. There can also be an overall decrease in morale, with many employees leaving the company, because they can't adapt to such changes, especially the older employees in senior management.
Laying off employees in the bid to streamline costs can be also be problematic. Employees tend to be more frightened of who might be laid off, leading to the overall morale dropping as well.
Private Equity firms who buy up other companies may also be guilty of squeezing such firms for dividends, or end up cutting costs too aggressively so as to improve their profitability. This was what happened to Kraft Heinz, where the firm who acquired them cut down too much R&D costs which led to their products not adapting with the times.