5 Things to keep in mind whilst planning that merger or acquisition

Some mergers and acquisition scenarios can be likened to the story narrated by Benjamin Franklin thus:

When I was a child of seven years old, my friends, on a holiday, filled my pocket with coppers. I went directly to a shop where they sold toys for children; and being charmed with the sound of a whistle, that I met by the way in the hands of another boy, I voluntarily offered and gave all my money for one. I then came home, and went whistling all over the house, much pleased with my whistle, but disturbing all the family.

My brothers, and sisters, and cousins, understanding the bargain I had made, told me I had given four times as much for it as it was worth; put me in mind what good things I might have bought with the rest of the money; and laughed at me so much for my folly, that I cried with vexation; and the reflection gave me more chagrin than the whistle gave me pleasure. 

This, however, was afterwards of use to me, the impression continuing on my mind; so that often, when I was tempted to buy some unnecessary thing, I said to myself, Don’t give too much for the whistle; and I saved my money.

 In short, I conceive that great part of the miseries of mankind are brought upon them by the false estimates they have made of the value of things, and by their giving too much for their whistles

Some acquirers give too much for the whistle by purchasing target companies at valuations that far exceed the true values of the companies and regret the decision afterwards. This usually occurs as a result of listening to advisers who are sometimes moe interested in their fees than in the future outcome of the transaction.

Some tips I garnered from the above video include:

  1. Ensure that each acquisition generates a minimum of 50% additional revenue from the combination of both companies. A deal is even sweeter where the incremental revenue approaches 100%, 200% or even 300%. Now that’s a sweet deal!!
  2. Listen selectively to your advisers, who may push you to conclude a defective deal because their fees are dependent on the deal
  3. Search out revenue synergies that give you extra sales power
  4. Create an implementation plan early on and get buy in from those who are to play a role in delivering the plan.
  5. Always keep a margin of error
  6. Walk away if the deal is not good

 

I hope this helps you do bigger, better and more profitable deals.

Leave a Reply

Your email address will not be published.