What is external growth?
External growth refers to the development of a company through the acquisition, merger or combination with other companies. Unlike organic growth (or internal growth), which relies on developing the company's own resources — hiring, new products, commercial expansion —, external growth offers fast access to new markets, technologies, skills and market share.
External growth or organic growth?
Organic growth is more gradual and controlled, but often slower. External growth, on the other hand, accelerates development and creates synergies, at the cost of greater complexity: valuing the target, financing the deal, due diligence and post-acquisition integration. The two strategies are complementary and can be combined within a long-term roadmap.
The main forms of external growth
Acquisition
The purchase of all or part of a target company in order to take control of it and integrate its assets and teams.
Merger
The combination of two companies within a single new entity, pooling resources and know-how.
Partnership
A strategic alliance or a minority stake, to collaborate without a full capital merger.
The 4 key steps to successful external growth
Define your external-growth objectives
Before you even embark on external growth, you need a clear understanding of your objectives. What are your objectives? What do you hope to achieve? Answering these questions will help you determine whether mergers and acquisitions are the right decision for your company and, if so, which type of acquisition would best help you achieve your goals.
The most common objectives
- Conquer new geographic or sector markets.
- Acquire a technology, a patent or strategic know-how.
- Strengthen market share and achieve economies of scale.
- Diversify your offering or secure your supply chain.
Depending on the objective, you will move towards horizontal integration (a competitor), vertical integration (a supplier or distributor) or conglomerate integration (a related sector).
Consider the timing
In addition to having a clear understanding of your objectives, you also need to consider the timing of an acquisition. If you wait too long, you risk missing a good opportunity. But if you act too quickly, you could end up overpaying or making another mistake. As with most things in business, finding the right balance is essential.
The right timing depends as much on your internal readiness (financing capacity, strength of your teams, available cash) as on the market context: valuation of targets, financing conditions and the competitive dynamics of your sector.
Do your homework
Before making a decision, it is important to do your homework and thoroughly research all potential acquisition targets. Otherwise, you could end up overpaying or finding yourself with a company that is not a good fit for yours. You must also be aware of the potential risks of any acquisition, such as cultural mismatch, the difficulty of integrating operations or even fraud.
What to watch in an acquisition audit
- The target's real financial health (debt, cash, profitability).
- Cultural and managerial compatibility between the two organisations.
- Legal, tax and employment risks.
- The feasibility of post-acquisition integration of teams and systems.
Get the right data
If you are considering an acquisition, it is always a good idea to look for the right tools. Digital solutions can help you find the right target companies, manage your deal flow and work collaboratively on the deal, all the way to the transaction so that it is in your best interest.
An M&A platform centralises target identification, negotiation tracking and secure document sharing. Combined with artificial intelligence, it speeds up sourcing and makes analysis more reliable. On this subject, discover our AI-assisted M&A method.
Frequently asked questions about external growth
What is the difference between a merger and an acquisition?
An acquisition is the purchase of one company by another, which takes control of it. A merger is the combination of two companies within a single new entity. In both cases, the aim is external growth and the creation of synergies.
How do you finance an external-growth deal?
Several levers exist: equity contribution, bank loan, an LBO structure (leverage), a fundraising round or mixed financing. You can estimate your capacity with our financing simulator.
What are the main risks of an acquisition?
The major risks are overvaluing the target, cultural mismatch between teams, difficulty integrating operations and hidden liabilities. Rigorous due diligence helps to anticipate and limit them.
How long does a merger or acquisition take?
An M&A deal generally takes 6 to 12 months, from identifying the target to the final signing (closing). The duration varies with the complexity of the deal, the financing and the integration phase.