What is inorganic growth?
Inorganic growth is the development of a company through the acquisition of, merger with or combination with other businesses. Unlike organic growth (or internal growth), which relies on building up the company’s own resources — recruitment, new products, winning new customers — inorganic growth gives fast access to new markets, technologies, skills and market share.
Organic or inorganic growth?
Organic growth is more gradual and easier to control, but often slower. Growth by acquisition speeds up development and creates synergies, at the cost of greater complexity: valuing the target, financing the deal, due diligence and post-acquisition integration. The two strategies are complementary and can be combined in a long-term roadmap.
The main forms of inorganic growth
Acquisition
Buying all or part of a target company in order to take control of it and integrate its assets and teams.
Merger
Combining two companies into a single new entity, pooling their resources and know-how.
Partnership
A strategic alliance or an equity stake, so that the businesses can work together without a full combination of capital.
4 key steps to a successful inorganic growth strategy
Define your objectives for growth by acquisition
Before you embark on inorganic growth, you need a clear view of your objectives. What are you aiming for? What do you hope to achieve? Answering these questions will help you decide whether mergers and acquisitions are the right move for your company and, if so, which type of acquisition would best help you reach your goals.
The most common objectives
- Entering new geographic or sector markets.
- Acquiring a technology, a patent or strategic know-how.
- Increasing market share and achieving economies of scale.
- Broadening your offering or securing your supply chain.
Depending on your objective, you will look at horizontal integration (a competitor), vertical integration (a supplier or a distributor) or a conglomerate move (an adjacent sector).
Get the timing right
Beyond a clear view of your objectives, you also need to consider the timing of an acquisition. Wait too long and you may miss a good opportunity. Move too quickly and you may end up overpaying or making another costly mistake. As with most things in business, striking the right balance is essential.
The right timing depends as much on your internal readiness (financing capacity, strength of your teams, available cash) as on market conditions: target valuations, the financing environment and the competitive dynamics of your sector.
Do your homework
Before taking a decision, do your homework and research every potential acquisition target thoroughly. Otherwise you may overpay, or end up with a business that is a poor fit with yours. You also need to be aware of the risks inherent in any acquisition, such as a cultural mismatch, difficulty integrating operations or even fraud.
Key points to check in acquisition due diligence
- The target’s true financial health (debt, cash, profitability).
- Cultural and managerial fit between the two organisations.
- Legal, tax and employment risks.
- Whether teams and systems can realistically be integrated after the acquisition.
Get the right data
If you are considering an acquisition, it always pays to look for the right tools. Digital solutions can help you find the right target companies, manage your deal flow and collaborate on the deal right through to completion, so that the transaction serves your interests.
An M&A platform brings together target identification, negotiation tracking and secure document sharing. Combined with artificial intelligence, it speeds up sourcing and makes the analysis more reliable. Find out more about our AI-assisted M&A method.
Inorganic growth: frequently asked questions
What is the difference between a merger and an acquisition?
An acquisition is the purchase of one company by another, which takes control of it. A merger combines two companies into a single new entity. In both cases the aim is inorganic growth and the creation of synergies.
How do you finance an acquisition-led growth deal?
Several levers are available: equity, a bank loan, a leveraged buyout (LBO) structure, an equity fundraising or a combination of these. You can estimate your capacity with our business loan calculator.
What are the main risks of an acquisition?
The main risks are overvaluing the target, a cultural mismatch between teams, difficulty integrating operations and hidden liabilities. Rigorous due diligence helps you anticipate and limit them.
How long does a merger or acquisition take?
An M&A deal generally takes 6 to 12 months, from identifying the target to signing and completion. The timeframe depends on the complexity of the deal, the financing and the integration phase.