What a great topic! Very often the best way to expand a business is by acquisition. I know this from my own experience in owning and growing manufacturing and high-tech companies, and from advising business owners in various industries to do the same.
Craig points out the definite economies of scale from consolidating marketing costs and employing a larger and, thus, more flexible work force. Generally, the larger a company is the more sustainable and financially secure it is.
But there are other advantages as well. Most administrative costs do not increase linearly; for example, a business two or three times larger will not incur two or three times the legal, accounting, insurance, or human resource costs. Often warehousing and distribution can be more efficient. And, inventories can be more flexible; by doubling the business maybe the currently available inventory can be just one and a half times more, resulting in more inventory "turns" in a year, and more profit. Plus with higher purchases volume, the business can often negotiate better costs and terms from suppliers.
In addition, management personnel can often oversee more than one site, for even more increased efficiency and cost-saving.
Of course, in acquiring an existing business, proper due diligence should be done, including a projected proforma P&L and cash flow of the potentially combined companies to be sure that the buyer will truly realize the economies of scale anticipated.