Strategic Choice Organizations Seeking to Expand Their

Strategic Choice

Organizations seeking to expand their operations have a wide range of expansion options at their disposal. Choosing the right option in this case can be rather challenging. My organization which plans to expand its operations is faced with this same challenge. Some of the options that have been explored in this case include the issuance of shares to the public through an IPO, merger with another entity, and acquisition of another entity in the same industry.

Issuance of Shares to Members of the Public through an IPO

In basic terms, an initial public offering (IPO) according to Lasher (2010) is the initial sale of securities to members of the public. One of the key benefits of an IPO has got to do with the creation of new capital for an entity (Smart and Megginson, 2008). The authors also note that when it comes to an IPO, a company can later use its publicly traded securities to acquire other companies mainly by exchanging its own shares for those of the firm it wants to acquire (Smart and Megginson, 2008). Unlike a merger and an acquisition, an IPO does not necessarily call for the formation of strategic partnerships/relationships with other businesses. An IPO can be a rather expensive undertaking (Smart and Megginson, 2008). Typical costs in this case include but they are not limited to accounting and legal fees as well as underwriter expenses. Although an IPO still remains a valid option it is important to note that the organization might have to contend with takeover threats once it goes public. Lasher (2010) also points out that "the market for initial public offerings (IPOs) is very volatile and risky."

Acquisition of another Company in the Same Industry

An acquisition according to Lasher (2010) can be said to have taken place where "one firm acquires the stock of another called the target." In the author's opinion, an acquisition just like a merger essentially involves the combination of a number of entities or business units to form a single unit. However, unlike in most mergers, acquisitions largely involve the use of organizational resources i.e. cash for acquisition purposes. Further, unlike a merger, the target firm ceases to exist on being acquired by the acquiring firm. Thus just like an IPO, an acquisition can end up being a rather expensive undertaking. However, if the organization in this case acquires another, it is likely to benefit from both enhanced efficiency and economies of scale.

Merging With another Organization