Page 4: Inorganic growth
Inorganic, or external, growth is another method used to grow a business. The main sources of inorganic growth come from mergers and acquisitions with other businesses. A merger is when two companies join together to create a new company. An acquisition is where one company buys another company which it then controls.
Although a much faster method of growth than organic methods, inorganic growth carries greater risks. It is often very expensive to buy a business, even if the business being acquired is in financial trouble. Acquisitions must be carefully planned to ensure the venture is viable. If acquiring a business that strays away from the organisation’s core competencies it must ensure it has the skills and knowledge required to run the business profitably. When analysing an acquisition, it is essential to recognise that a business is not just purchasing tangible items such as employees, stock and buildings, but also non-tangible ones such as reputation, intellectual property, liabilities and goodwill. Once an acquisition has been finalised the process of integration must be carefully managed so that a smooth transition takes place without a loss of value in the acquired company.
Carefully planned acquisitions are key to IMI’s growth strategy. IMI focuses its acquisitions on companies that are complementary to its existing businesses and will help it achieve its mission and goal. This involves acquiring companies that are leaders in their respective fields to strengthen IMI’s market share. Two examples are IMI’s Severe Services platform acquisition of German industrial valve maker Zimmermann & Jansen in 2010 and the leading Italian engineering business Remosa in 2012. These enabled IMI to become the leader in custom engineered valve and control solutions for critical in-plant processes. Both companies operated in power generation and oil and gas, industries in which IMI already had a wealth of expertise. They also gave IMI a strong presence in emerging markets, including South America and Asia, where Remosa, for example, was already highly active.
Another example of inorganic growth is IMI’s acquisition of InterAtiva in 2012, a Brazilian isolation valve business serving various end markets including oil and gas and water treatment. This acquisition also supports IMI’s market development strategy. InterAtiva had strong customer relationships in Brazil so IMI has been able to increase its customer base and presence in this core emerging market.