[Music] hello weapons taking the Bears the channel for a level business revision this video is gonna focus on mergers and takeovers or you may have seen it referred to as in organic growth now murders and takeovers are two different ways of in organically growing an organization a merger is where two or more firms come together join forces if you like to form a new business it's where the shareholders of each organization decide that they can be more competitive if they join with other organizations so they take the assets that each of them own and they use those to start a new business a new organization made up of all of the other organizations involved in the merger a takeover is different a takeover is where one business decides that it would like to purchase and own all of the assets of another business including their machinery equipment vehicles property but essentially their brand names in their product portfolio now with a takeover no new business is being formed all of the assets of one business are being transferred to the business that is taking it over so even though the brand names of the business being taken over might live on that business is essentially being swallowed up by the organization that is taking it over now when we have mergers and takeovers there are different styles or types of merger and takeover that a business might pursue if a business decides that it would like to merge or takeover a business that is further back in its supply chain essentially if it wants to merge or takeover a business that was formerly one of its suppliers then it's known as a backwards vertical integration now this can be advantageous for a business because now they own or have merged with an organization but used to supply with stock over all materials so obviously that means that they can get their raw materials cheaper because now that they own that business they don't need to sell it to themselves at a profit they can sell it to the sales cost but it also means that they might be able to strict supply of that component or that raw material to their competitors so it can be a useful way of growing your business the opposite approach is what's known as vertical forwards integration this is our business might decide to merge or take over a company that was formerly one of its customers so an electronics firm for example might decide to merge or take over an electronics retailer that previously would have sold their products now the advantage of this is that you gain more control over the marketing of your product rather than selling it on to a retailer you now own that retailer or emerged with them so you can control the end price your products are sold for you can decide the promotions that your products are utilizing so it gives the business more control over the sales of their products one common type of merger or takeover is what's known as horizontal integration where businesses are coming together through mergers or takeovers where the business that was formerly one of their rivals at the same stage of the supply chain or the production process as them so two rival car manufacturers may decide to integrate one might take over the other or the two might merge together now one of the big advantages of this is obviously that we get economies of scale because now we have a business that needs to purchase all of its parts all of its components on a grander scale the wild card type of integration is what's known as diversification where a business decides to take over or merge not a firm that's even involved in the same supply chamber a firm from a completely different industry so if the manufacturer of sports where equipment decided to merge with a media company this would be known as diversification two firms from different industries potentially different stages of the production process deciding to integrate together now when we're writing essays we might get asked to talk about the benefits of mergers and takeovers or in organic growth the first that we might want to write about in terms advantages is what's known as synergy the idea that when we bring two things together then what they create is greater than the sum of its parts in textbooks they refer to synergy as two plus two equal in five the end result being something greater than the individual sum of its parts I always liken it to cadburys chocolate buttons when you are eating a glorious pack of chocolate buttons you can't eat two chocolate buttons one after the other and they taste fantastic but if you take those two buttons put them back-to-back pop them on the palate then what they create when added together is a taste sensation unlike no other it's synergy it's two things coming together to create something even greater and that's what firms are after within organic growth they're hoping that by bringing two separate organizations together what it creates is something better bigger greater than the individual parts when they were separate so synergy is a great example to write about of in organic growth as is economies of scale so the economies of scale with vertical backwards and vertical forwards integration may still materialize there may be some crossover in terms of the the marketing perhaps or some of the functions of the organizer and maybe cost savings that can be made in the purchase for materials some of the greatest economies of scale are going to be with horizontal integration where two firms from the same stage of the supply chain are integrating and can get those purchasing economies of scale going and the other advantage firms are hoping to achieve through in organic growth is of course the growth in profits so bringing two firms together means the profits of those two organized organizations can be combined the costs of those two firms may well be able to be reduced as bringing two firms together might mean that the firm doesn't need to duplicate all of those resources so maybe some of the human resources can be let go maybe some of the physical resources that are duplicated can be sold off and it might increase the profits of the organization but there are some potential limitations of mergers and takeovers as well first of all it may be that large emerges and takeovers have to be signed off by regulators such as the competitions and Markets Authority and it might be that mergers and takeovers could even be blocked if regulators feel that it might create too powerful a firm that might dominate the market might create monopoly power for this new organization that might not be in the interests of consumers so we've got the problem that maybe regulators might investigate are in organic growth we've also got potential human resource issues murders and takeovers can be a period of upheaval and insecurity for staff who might feel that their job is being threatened as organizations are coming together their job might even be moved to a different location or replaced altogether if your job is protected it might be that valued colleagues are losing theirs so it can be a period of uncertain of job insecurity that might lead to problems with motivation might lead to problems like absenteeism labour turnover lower levels of productivity that doesn't even account for the problems we might have with motivation caused by trying to integrate the cultures of two different businesses together as well so it can be a challenging thing to bring these organizations together to create a business going forward we've also got the huge cost that's involved with takeovers specifically as well so when large PLC's are taking over other organizations it's possible that the takeover might cost tens of millions hundreds of millions or into the billions of pounds lots of that might need to be from borrowed funds through external finance which might need to be repaid with interest so it can be an expensive process to go through as well and of course we shouldn't mention economies of scale being an advantage without also having half a mind on the fact that in organic growth creates larger organizations bringing two businesses together creates a bigger firm and we know that when the scale of our output is increased yes we may benefit from economies of scale but if this goes further we might suffer from this economies of scale we might suffer from inefficiencies of now running an organization that is much larger in scope this might mean that we have difficulties managing the organization effectively it might mean that we have difficulties with our organizational hierarchy with overseeing the work of employees labor productivity may begin to suffer unit costs may start to rise back up again we might have diseconomies of scale on our hands which obviously has a financial impact on the organization so there's our topic of inorganic growth mergers and takeovers important to know the difference between the two the different types of integration firms might be attracted to and the advantage and limitations of integration hopefully that will help you if that topic comes up on the exam keep on taking the biz you you you