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It's hard to say whether or not an acquisition will pan out, and different companies will make acquisitions for different reasons. A medical device maker or technology company might make an acquisition for nothing more than a piece of intellectual property. A consumer staple might buy in a competing or foreign brand to fill out their product suite (KO and PEP do it all the time). You need to look at why and how much they paid. Look at the acquired company, value it and ask if the acquirER paid a good price for the acquirEE. Digging into the company they bought may answer your question with regard to whether or not that growth expectation is reasonable.

I don't really understand how acquisitions affect growth, but I can appreciate the fact that if you are acquiring a company with X% of the market, their revenue now becomes your revenue and I guess that added revenue is growth.

This is exactly the case. If you buy a company all its future revenue is yours. And that added revenue is growth. Synergies can also exist to exploit. When PepsiCo went into Russia and bought WimBillDan, a big part of the rationale was cooler space. Buying the largest dairy in Russia not only brought in a new Dairy/Juice line, it also gave them an entrance for all their products, without the cost of assembling a distribution network and marketing group de novo. It automatically gave Pepsi a new toehold in Russia.

Is this a good way to grow? Seems that this is what you do if you don't know how to grow your own business.

Yes it can be a good way to grow, and yes, it is a way to grow a business that can't grow. Many do spurn that "non-organic" growth model. In part that's because it's not as predictable as organic growth. Yet, some companies that are serial acquirers do it quite well for very long periods of time. The mega-brand compaies like KO and PEP come to mind. Illinois Tool Works (ITW) buy small industrials and string them together in a strategic network, bringing managerial expertise to improve their efficiency.

Another example is GE and its look-alikes: EMR, HON, etc. Conglomerates can live off acquistions for growth for a long time. Techs as well. CSCO and MSFT are serial acquirers, buying to round out their product suites. Perhaps the prime example would be Berkshire-Hathaway. Buffett has mounds of cash. Buying new businesses at good prices is how that Empire was built, and continues to be built. It's what he does and he does it well. Is there a limit? Perhaps, but he's succeeded in making it work for an entire lifetime. It just needs to be done well to work well, like anything else.

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