A business may grow by acquiring other companies in the same or similar business.

 

The primary advantages to this method of expansion are the control and flexibility on the timing, and the ability to increase growth exponentially in a very short period of time.

 

However, there are some serious disadvantages to this type of growth, including:

(a) the high cost of acquiring companies, often at a premium price;

(b) the legal and accounting expense in the due diligence process;

(c) the potential liabilities of the acquired company;

(d) the potential difficulty in merging the cultures and personnel of two different companies; and

(e) the potentially adverse effect the acquisition may have on the customers of the acquired company.