Acquisition Potholes

ACQUISITION POTHOLES:

The Facts:

A KPMG study conducted in 2000 determined that only 17% of Mergers and Acquisitions examined created a substantial return and, even more discouraging, 53% destroyed value. Validating these findings, a six year study by Business Week showed that 61% destroyed value that existed prior to the acquisition (BW October 14, 2002).

Why?:

Acquisitions run a high risk of failure…there are many potholes on the road to achieving a successfully integrated and operating acquisition that is contributing to the worth of the enterprise.

A few of the causes of these discouraging statistics can be found in the steps of the process, including:

1. Defining criteria for the ideal target

2. Conducting a ‘pull’ search (rather than waiting for an intermediary to ‘push’ a prospect at you)

3. Researching, gathering information, evaluating, qualifying and profiling the candidates

4. Organizing, managing and comparing the data gathered

5. Ranking the candidates based on the criteria

6. Making a strong and seamless connection between buyer an seller

7. Negotiating in good faith

8. Effective due diligence by competent and qualified experts – not only finance and legal, but risk, technology, branding, etc.

9. Looking beyond traditional due diligence into the human factors of the organizations

10. Having a financial and tax plan in place that will optimize the transaction value (but not the cost)

11. Maintaining current information on the candidate so that material changes are identified

12. Successfully negotiating a fair transaction (or pushing back from the table if things aren’t progressing satisfactorily)

13. Integrating the businesses (to the level desired) quickly and effectively

13. Continuing to manage the new organization with an understanding and appreciation of the corporate memories

A stumble in any area can cause an acquisition to derail (or at at a minimum, to underachieve.) Rely on experts who have successfully driven this road before.

Cliff Allen
Packard Acquisitions
Researching and Profiling
Privately Held Companies for Acquisition
Office/Cell: 651-226-2853
Facsimile: 651-578-7567

www.packardacquisitions.com

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Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.

Risky Ventures

Private Equity’s Appetite for Risk

Risk – a four letter word if there ever was one – is reclaiming its rightful role in acquisitions. The last several years have seen a marked disdain for the concept of ‘possible adverse consequences’.

With every indicator moving up – the exposure to danger was nothing compared to the lure of lucrative deals.

Well, the current market conditions have shown us (again) that past performance is no guarantee of future returns. Yep. You could lose it all.

The statistics bear it out. A 2000 KPMG study found that 83% of acquisitions failed to create the expected return and 53% actually destroyed value. A 2002 six-year BusinessWeek study found that 61% of acquisitions destroyed value.

So what has been going on for the past 8 years? Appetite for risk went up. Way up. Now those chickens are coming home to roost.

Is the solution regulations?   Experts say no. 

Continued bad results will likely attract more regulation. Better tools and more a more expert approach to M & A will provide improved results and lessen the demand for more regulation.

 

Equity caught some of Greenspan’s “irrational exuberance.” Deals were made that weren’t ideal – they weren’t even good. Equity needs to make sure it doesn’t reward people for deals no matter their outcome. I firmly believe that Equity has cleared its head and awakened from the binge.

It’s about time.

Make no mistake, deals will still be made. Hopefully, they will be more thoughtful and deliberate. Maybe M&A teams will think to use cutting edge tools and outside experts to minimize their risk and increase their reward.

Maybe, just maybe, M&A will have to earn it.

Risk. Knowing it, containing it, and managing it – is the key to successful acquisitions – not governmental regulations.   

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Got a different point of view, want to play devil’s advocate, or just think we’re all wet? Post your experiences or examples.                                                                                                                                                                                          Brought to you by;                                         www.packardacquisitions.com