Posts Tagged Risk
Warren Buffet is Still Right
Posted by Packard Acquisition Research in Acquisitions, Risk on February 2, 2011
Last weeks Star Tribune article on the negative impact the Albertson’s acquisition is having on Super Value was a powerful reminder of Moody’s report that half of all non financial business failures in 2009 were Private Equity owned.
It is significant that a high failure rate among the people with the most money and best access to information and superior process (private equity funds, large corporations) indicates a need for improving the decision making process at the front end. Away from transaction driven (broker driven) deals to a more internalized and measured approach to criteria and candidate selection.
Is it easier to make better decisions within smaller companies?
In the Super Value story above, it appears that size of the acquisition must have driven the targeting of a very few mega candidates.
Rather than slow steady growth that would not ruin the brand if big problems were encountered with a single transaction, companies risk everything with each new acquisition.
With the decade long troubled history of acquisitions, I recommend Warren Buffet’s comments about evaluating each new acquisition target ;
” Just think of all the other parts of life where people offer only encouraging words — “You should do this!” — because that’s the only way they get paid (real estate agents, stock brokers, the list goes on).
And Mr. Buffett has trained his sociologist’s eye on this phenomenon more broadly, too. In his 1989 letter to shareholders, he famously wrote about the “institutional imperative,” which describes, among other things, how an entire organization can rise up to help a boss justify some deal he’s inclined to do, regardless of its merit”
And of course, my favorite Warren Buffetism; “
Don’t ask the barber if you need a haircut”
2011 Acquisition Climate
Posted by Packard Acquisition Research in Acquisitions on January 3, 2011
These past two years have cut and squeezed fat out operations and forced even the best run companies to revisit efficiencies, layoffs, and cost reduction.
Internal growth in this environment has been tough.
Finding complementary technologies, greater distribution, new talent, and added sales through non organic growth can be an attractive option for the prepared company.
For those that understand the risks & prepare for the pitfalls of growth through joint venture and acquisition, 2011 will present abundant opportunities as baby boomers exit their businesses and the changing bank climate is forcing many firms to seek partners or buyers.
According to studies at Harvard, Wharton, and KPMG, most acquisitions don’t add value, and over 50% destroy value.
Developing the right talent, tools, and process for acquisition are a necessary first step to removing the risk inherent in the process.
Is your company poised to take advantage of the deal rich climate for acquisition/joint venture 2011 offers?
Feel free to share stories and best practices at this blog or to search past writings (from various experts) to help find success and avoid the pitfalls of acquisition.
Contact me to attend an upcoming Pacquistions 90 minute acquisition workshop at the Minneapolis MN/Edina Country Club (Next available date; February 23rd) or an onsite presentation for your firm; Mike@packardacquisition.com 952-542-9318
Risky Ventures
Posted by Packard Acquisition Research in Acquisitions, Business models, Business valuation, business finance, Equity, Equity groups, M&A,, Mergers, Risk on December 7, 2008
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.
