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Acquisitions - How to make a return…(part 2)

In my previous blog I mentioned the failure of the majority of acquisitions to generate a return for the buyer. Buying a company is a different process to anything else you have experienced. The wrong move at the wrong time will cost the deal – even the right move at the wrong time could cost ‘hundreds-of-thousands’ of lost value. 

I finished the last posting at the point where a search for acquisition targets had commenced. The typical acquisition targets are competitors, suppliers and even customers. Businesses in parallel markets should also be considered - for example an accounting practice could acquire a financial advisor

If we are offered a business at what is ostensibly a bargain price - we will not need to perform a wide search, but we should still test the market. Are business within the sector being sold at similar prices, is this really a bargain?

Lets now presume that a suitable business has been found. What information do we now request? At this stage the seller will be reluctant to provide too much detail - some recent P&L's, with details of any exceptional revenue / costs and the remuneration extracted by the sellers should suffice. 

In order to make a serious offer for the business - it is standard practice to hold detailed discussions with the sellers, and extend this to key management if appropriate. The seller is still likely to be reticent about certain sensitive information, but some level of detail can be provided including customers, suppliers, contracts and management. 

At this stage we are still a way off Due Diligence – only then will full disclosures be made – as illustrated by the recent transfer saga of Kaka / Man City reported in two our national papers – The Independent and The Guardian.  

I will return to the Diligence stage soon.

 

 

Date: 27th January, 2009
Author: Julian Dobbin

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