Acquisition Potholes

108-0872_imgACQUISITION 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

Have something to add?

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

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One thought on “Acquisition Potholes

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  1. My company organizes business-to-business conferences for M&A professionals, distressed debt investors, turnaround pros and others — and I hear this story a lot.

    The main reason acquisitions go south is the inattention to the human factors. The seller is eager to go out the door and has no incentive to preserve his investment in his people; and the buyer hopes the aquired company will run itself. Buyers would be wise to nail down the management & operational issues and make sure the corporate memory doesn’t exodus too — as is most often the case. Companies are organizations of people, not just numbers on a spreadsheet.

    Cyrus the Great conquered a vast empire by beheading the petty kings of his acquired territories — but he kept and rewarded the management class of the deposed king. He valued good people, and he wasn’t greedy.

    Our next M&A event is in Chicago, April 28-29 at the Drake Hotel (www.iibig.com/F0902). The event focuses on distressed & turnaround investing. Readers of this blog may receive a $500 discount when registering by entering discount code MA500.

    Don Buford, CEO, iiBIG – 212-300-2529 – donb@iibig.com

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