Practise evaluating organic and external growth, mergers, takeovers, joint ventures and diversification using exam-style scenarios and mark-scheme evidence.
Define the term takeover.
Define the term takeover.
Indicative content
Responses may include:
AO1 Knowledge and understanding
Clear understanding 2 marks
- A takeover is when one business/investor buys / acquires / controls / absorbs / integrates another business, often by buying a majority stake in the target company.
Partial understanding 1 mark
- Purchasing a business
Accept all valid responses.
Explain one disadvantage to a business of external growth.
Explain one disadvantage to a business of external growth.
Indicative content
Responses may include:
AO1 Knowledge and understanding
1 mark for identifying one disadvantage to a business of external growth
- May require considerable additional expenditure
- May lead to increased debt
- May cause problems for existing management
- Might lead to loss of control of core business
- Disruptive to original business - culture clash
- Growth may be too rapid - diseconomies of scale
- May be more regulations/different management culture in a different market
AO2 Application
2 marks for developed application/explanation of one disadvantage to a business of external growth
1 mark - for limited application/explanation of one disadvantage to a business of external growth
- Can be very expensive to take over another business - which could raise business costs.
- Managers may lack the experience to deal with a different business - which could lead to poor decision making and inefficiency.
- Can lead to loss of control of the business - especially if it is a hostile takeover.
- Can lead to culture clashes - whereby employees may find it difficult to adapt and leave.
- Different management styles may be incompatible - which can make decision making difficult.
- May need to adapt different marketing strategies - which can be very expensive.
- Can lead to an increase in long-term debt - which can lead to a higher gearing ratio.
- Can lead to regulatory problems - whereby the government may prevent a merger or takeover from happening.
Accept all valid responses.