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).
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.
Researching and Profiling
Privately Held Companies for Acquisition
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