1) Choose one example of a recent acquisition that has taken place or which is planned.
In November 2005, the London- based brewer Fuller, Smith and Turner bought Gales brewery, a formerly family-run brewers based in Hampshire, in the south of England. The acquisition of Gales by Fuller sparked concerns that the Gales brewery in Hampshire would close down. Fuller’s stated that they intended to continue brewing Gales beers and that the range of beers Gales owned complemented Fuller’s product portfolio.
2) Try to identify which of the reasons given above is relevant to the case that you are looking at. What evidence is there to support your choice?
There are many reasons for the acquisition of Gales by Fuller. One reason for that is capacity. Capacity is relevant to this specific case study because Fuller acquired another business (Gales), increasing their capital assets, and that enabled it to increase its capacity relatively quickly as their profits sky-rocketed by a third in only 6 months.
Economies of scale is another reason for this acquisition. Economies of scale are the advantages of large-scale production that result in lower cost per unit produced. This is relevant to this specific case study because Fuller’s changed its scale of production. It acquired Gales therefore increasing its scale of operations; it now has more labor, plant, and equipment. It increased its factors of production. By doing this, they hoped to boost its profit margins or enable it to compete with its rivals more effectively.
Another reason for this acquisition is plugging a gap in the market. Fullers felt that its product portfolio is not sufficient enough to cater for different customer needs in its market so it acquired Gales because their range of beers complemented Fullers’ product portfolio. This is because Fullers’ range tends to be focused on winter sales whereas Gales’ range is more appropriate for the summer. Fuller’s profit was up by nearly a third to £10.9 million in only six months; a spokesperson at Fuller’s said that that was mainly due to the fact that Gales’ range of beers complemented those of Fuller’s.
3) Of the reasons you have identified, which do you think is the most significant reason for the acquisition and why?
The most significant reason for the acquisition is plugging a gap in its market. This is because the acquisition enhanced Fuller’s product portfolio by providing beer for different times of the year, both in the summer and the winter. This increased its revenue by almost 30% in only six months because they were able to sell their products all year round rather than just in the winter like they were doing before the acquisition. A spokesperson at Fuller’s said that the increase in profits was mainly due to the fact that Gales’ range of beers complemented those of Fuller’s. This indicates that plugging the gap in the market is the most significant reason for the acquisition.
4) Discuss the extent of the impact on the different stakeholders of the business that you have selected.
The effect of the acquisition on Gales by Fuller’s on the employees of Gales is very serious because since the Gales brewery in Horndean, Hampshire was closed down and the production was transferred to Fuller’s brewery in Chiswick in West London, 21 people lost their jobs. Also, if the firm becomes too big, then there are likely to be poorer working relationships as the senior management are more likely to become detached with those lower down in the hierarchy; thereby making them feel alienated or out of touch. This can negatively affect communication flows and the morale staff.
This also impacted the local community as 150 years of brewing tradition in Horndean, Hampshire disappeared when Fuller’s acquired Gales and closed it down.
The acquisition will also affect the customers because the closure of the brewery and the move to Chiswick will affect the taste of the beer, the price, how widespread the Gales’ beers will be, and how easy will it be to access them.
The acquisition will impact the shareholders as well as it will be very beneficial to them. Since the acquisition, Fuller’s profits increased greatly therefore this is great news for the shareholders as that means that they will get their dividends from the shares they invested in.
The acquisition can also impact the management in a negative way because if the business becomes too big, then the management may lack control and coordination and that is likely to increase and cause problems for the management. The increased amount of bureaucracy will likely slow down decision-making, and add to the costs of the business. Bureaucracy can also make communication more difficult. This can also lead to an internal diseconomy of scale.
The acquisition of Gales by Fuller is not going to have a huge impact on the government, regulatory bodies, and suppliers.
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