What is Inorganic Growth?
Inorganic Growth is achieved by pursuing activities related to mergers and acquisitions (M&A) instead of implementing improvements to existing operations.
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What is the Definition of Inorganic Growth?
Generally speaking, growth can be categorized into two types:
- Organic Growth → Organic growth stems from the business plans set into motion by a company’s management team, such as cost-cutting measures, internal research and development (R&D), and operational improvements.
- Inorganic Growth → Inorganic growth results from mergers and acquisitions (M&A) or strategic alliances to drive revenue.
As part of the normal course of the business lifecycle, the growth opportunities available to companies will eventually fade over time.
Companies that have reached a stable rate of growth with limited growth opportunities in their pipeline are most likely to turn to and begin to rely increasingly more on inorganic growth strategies.
Examples of inorganic growth strategies are the following:
- Mergers
- Acquisitions
- Strategic Alliances
- Joint Ventures
Inorganic Growth vs. Organic Growth: What is the Difference?
The desired end result of organic growth strategies is for a company to improve its growth profile using its internal resources, whereas inorganic growth strategies seek to derive incremental growth from external resources.
While achieving organic growth depends on a company’s internal resources and improvements to its existing business model to increase revenue and profit margins, inorganic growth is created by external events, namely mergers and acquisitions (M&A).
Therefore, most companies that pursue inorganic growth strategies tend to be mature and characterized by stable, single-digit growth, with sufficient cash on hand or debt capacity to fund a potential transaction.
