Growth through investment A Bibby Line Group case study
Page 4: Inorganic growth
Inorganic growth occurs when a company grows by merging with or acquiring other businesses. Mergers and acquisitions are a much faster way of growing a company than organic growth.
The company immediately gains the customers and sales of the acquired businesses, as well as its assets and market position. However, inorganic growth is a more risky strategy than organic growth because it involves taking over a new business, which may have a different culture and way of doing things. It can also be expensive – profitable businesses cannot be acquired cheaply.
The acquisition strategy of Bibby Line Group has enabled the business to diversify into new product and service areas. As an example, the Group's distribution business recently expanded its product and service range by taking over two companies – one in the returnable packaging market and the other providing logistics to the food manufacturing industry. Logistics involves all the processes required to move goods from a point of origin to an end point, such as from a factory to a retailer.
Another example of inorganic growth was Bibby Line Group's acquisition of Garic Ltd in 2008. Garic is a plant and equipment hiring company to the construction industry. This is a relatively young and dynamic company with lots of growth potential.
In 2007, Bibby Line Group entered the convenience retail industry when it acquired a 51% stake in Costcutter. It later took full control of the convenience store retailer in 2011. Bibby Line Group views the convenience retail sector as an excellent long-term prospect. It plans to support the Costcutter management team in continuing to put retailers at the heart of the business.
The strategy of diversification has enabled Bibby Line Group to move into industries with strong growth prospects. For example, in 1982 the company moved into the rapidly growing financial services market. There were real opportunities in this market. Today, Bibby Financial Services is the UK's largest independent (i.e. non-bank) debt factorer. This business provides finance to companies to help with cash flow. It offers a service to companies that conduct a substantial number of transactions on a credit basis. Bibby Financial Services provides finance to these companies against unpaid sales invoices. The company can use this finance to buy in more products to sell. Bibby Financial Services now factors over £6 billion of debt in 14 countries. Since the business was set up by the Group it has grown organically, expanding into Hong Kong, Sweden and New Zealand in 2011, and inorganically by acquiring businesses in the UK and Europe. More recently it has created new financial products in Australia and Poland.