Buying other people’s companies is rarely straightforward

Organic growth is precisely what it sounds like. Companies invest in new capital assets and additional staff to expand the revenue earning potential of their existing business. Growth by acquisition is also exactly what it says on the tin. Companies simply buy someone else’s goodwill, capital equipment and workforce and, in so doing, achieve instant growth.
In reality, of course, there is nothing simple about acquiring someone else’s business. There is a huge amount of work that needs to be done both before and after a takeover deal. Again, while most purchases of companies are agreed on a friendly basis by negotiation, the situation can be totally different where publicly owned companies are concerned. It’s not just that the target companies are owned by the shareholders rather than solely by the directors but, where very large corporates are concerned, there may be other major issues to consider like possible redundancies and / or the national interest.
When one company plans to launch a takeover bid for another, it usually calculates the highest price it can afford by taking account of synergies. A classic example of this is provided by the purchase of Halifax Bank of Scotland ( HBOS ) by Lloyds Bank. The latter obviously took due account of the fact that, in many towns and cities, there was an overlap of branches of both banks and that huge sums of money could be saved by closing a lot of them and making the staff redundant.
An example of another controversial takeover that happened recently was that of chocolate firm Cadbury by the American giant, Kraft Foods. This was resented by many Brits who felt that a national treasure and strategic business was going to be run by foreigners who weren’t the slightest bit interested in Cadbury’s historical connection with Bournville and who might very well decide to move a lot of production to cheaper areas like Eastern Europe or Asia. Clearly, where there is a clear national interest in blocking a takeover approach by an overseas entity for something like Rolls Royce aero engines, the government would quickly intervene.
In today’s world where so much of the business scene has a political angle, shrewd companies looking at possible target acquisitions will not only perform their usual financial due diligence but will take full account of other possible tripwires like union reaction to any factory closures and redundancies.