1. Chapter 18 Unit 5 Q6/7 Expansion
Reasons for and methods of expansion
3 main sources of finance
Importance of expansion
contrast equity and loans for expansion

2. Grow to survive or increase profits
Organic growth: internal financed from reserves/profits
Inorganic: acquisitions, mergers or alliances
Acquisitions: one firm buys another, buy over 50% of shares
Merger: two companies come together as one. More friendly than a takeover

3. continued
Alliance: for specific aim like share skills, technology, market knowledge. Strategic when one or more come together to increase competitive advantage in a market. E.g Aelingus and Oneworld Airlines
Cheaper, more opportunities and more capital

4. Expansion:
1) Horizontally, 2) Vertically, 3) Laterally or by 4) Diversification
1) same line of business e.g two petrol co’s
2) or firms at different production level e.g publishing co merge with printing company
3) related businesses Kerry foods and K ingredients
4) or merge with totally unrelated businesses BA tobacco and Lancome

5. Reasons for expansion People reasons: personality of managers
Defensive reasons: lower cost and guard supplies, guard market share
Aggressive reasons: to keep off competition and growth, increase market share

6. Finance for expansion
Long term finance usually: 1 Reserves, 2 Share Capital and 3 Loan capital
1 money saved from last years accounts
2 sell shares outside company or sell more shares instead of dividends to shareholders inside the company
3 fixed rate long term loans (debentures). Bank will want to see plans and accounts and the 3 C’s Character, Capacity, Collateral

7. Share selling (or Equity) versus getting loans
With share selling: you lose control the more you sell, dividends can be lowered by management, dividends are heavily taxed
With Loans
regular payments that must be paid, conditions
but they are very tax deductible can write off interest payments

8. Expansion good and bad
Can lead to unhappy workforce if merger means new people working with them
Job losses as company consolidates
Costly
Merger mightn’t improve the company
More power with suppliers etc cos bigger

9. The importance of Irish Business Expansion
At home: Jobs,taxes,survival against bigger international companies, more likely to export when large
Expand Abroad: profits come back home. New skills and technology, more competitive

10. Conclusions and Q’s Types of expansion are?? Organic Versus Inorganic?
Merger, Aq, and Alliance??
The ways in which frims can expand horiz….??
Reasons for expansion are..?
Finance options why Loan over Equity??
Why important for home and abroad?