There are no "rules of thumb" in the pursuit of companies to buy. Each purchase opportunity has to stand on its own merits. There are, however, attributes of acquisition candidates that need to be defined for what they really are before additional, limited resources are put at risk in a potential deal. It is absolutely critical for any proactive business buyer to understand, consider and deal with specific business characteristics that add unnecessary financial risk to the investment opportunity at hand.
The purpose of this article is to highlight characteristics of acquisition candidates that you should consider absolute "deal killers". These are brought to your attention because it is very common and natural to get so far down the due diligence trail on a company you have worked so hard to find, that IS for sale, that is right in your industry "comfort zone" and not see the inevitable financial disaster looming down the road because you became "blind" to what the future business potential will be, versus the potential of what you think it could be!
Buying Quality Businesses is a "Number's Game"
There is a direct relationship between perceived value of something that is in very limited supply and the time and effort you have invested to find it. Quality businesses, with extraordinary growth potential, that are for sale, are like the proverbial "Diamond in the rough" or "Needle in the haystack" analogies ? it takes removal of tons of dirt and mounds of hay to find what you seek!
In any proactive business acquisition pursuit, a seasoned business buyer will tell you that finding viable companies that can be purchased for reasonable terms is a "number's game". Thousands of company candidates, that lead to hundreds of contacts, which lead to ten's of acquisition conversations, that hopefully lead to one company purchase!
Going into any business acquisition effort, knowing what it takes to find and eventually secure a business purchase deal has a dramatic affect on the definition and your eventual allegiance to your business purchase criteria. If your purchase criteria are too "tight" and your commitment too rigid to that criteria, you may quickly feel you'll never find your "ideal" company to buy!
Absolutely, Unquestionably, No Brainer, "Deal Killers"
Attempting to find and qualify businesses to buy is an iterative and complex process. Each opportunity eventually stands on its own merits and purchase compromises will prevail because it is unrealistic to think you will find the exact, "perfect" acquisition opportunity. There are, however, business attributes, like these listed below, that are best left with the current company owners:
? The sellers have previously terminated two or more purchase contracts
? The current business owners have no clear, compelling reason to sell
? The sellers cannot provide basic financial information
? The business is completely dependent on one key employee
? The seller will not provide any form of "earn-out" based on future company performance
? The business relies on limited natural resources to produce its product or service
? Improper application of the company's product/ service = major $ liability
? The company has not been profitable for the last 3 years
? Pending significant legislation possibly impairs future growth
? Key personnel will not sign employment contracts or non- compete's
? Payment on acquisition debt exceeds 50% of after-tax profits
? There is an insufficient pool of labor or talent to grow the business
? There is no technical or knowledge barrier to entry for the targeted business niche
? Key patents are about to expire
? Only one supplier can provide a key product/ service ingredient
? One customer equals greater than 20% of total annual sales revenues
? A viable competitor offers ALL the products and services your customers need
? There is no customer purchase loyalty
? The overall demographics of your targeted market(s) are negative
? Extraordinary product/ service warranties are firmly established within the industry
? The product must be manufactured overseas to effectively compete
? Targeted, primary markets have had no growth the last three years
? There is existing or pending, noteworthy legal encumbrances against the company
? You determine the current business owner lies to you about "small" details
Assuming you have clearly defined and documented your critical Business purchase criteria well in advance to starting your business acquisition program, you will often start to compromise your purchase criteria as you continue to invest more time and money to find your "ideal" acquisition candidate. This is a "cardinal sin" in merger and acquisition pursuits. Compromising your purchase criteria is natural tendency, but ultimately a fatal mistake!
The importance of defining, understanding and truly committing to your critical company attributes is most important during these frustrating times. The most effective business buyers are disciplined business buyers. They are those who can decisively deal with uncovered negative company attributes and immediately move on to the next purchase opportunity.
About the Author:
Mark Smock is President of http://www.business-buyer-directory.com, the FIRST international business buyer directory of its kind. Business Buyer Directory provides a non-traditional means for proactive business buyers to locate businesses for sale worldwide that meet their exact registered purchase criteria.
executive chauffeured services Bradford .. Madison to Airport carImagine spending the same amount of money on marketing and... Read More
I'm not talking about posting the HBO schedule on your... Read More
From time to time there seems to be a flurry... Read More
In Ohio: besides the 3-Cs you should look at Akron,... Read More
As fast as you can say business disaster, your business... Read More
As a franchisor it is imperative that you seek, find... Read More
Microsoft Great Plains fits multiple services market niche and healthcare... Read More
Here is an abstract thought on studying nature and the... Read More
GETTING STARTED WITH SUCCESSION PLANNING: PART IA survey of 4,300... Read More
You might be thinking to yourself, "Why should I waste... Read More
Succession planning requires the owner of a small or medium-sized... Read More
Many cities have home pages on the Internet. Many of... Read More
Diversify - to make diverse, give variety, to balance, to... Read More
"Rubbish!" shouted the large, aggressive man in the red-striped shirt... Read More
Richard L. Daft one of the country's recognized academic leadership... Read More
After 128 years of business, a household word, Montgomery Wards,... Read More
Writing a business plan is an essential part of the... Read More
Remember Chux? The disposable diaper that took the market by... Read More
If you are a manufacturer wanting to use your business... Read More
All investors greatly desire and are motivated by a clear... Read More
The goal of almost every business owner is to generate... Read More
Possibly THE most frequently asked question of me is "What... Read More
How are you feeling today? Good, not so good, great?... Read More
In today's rapidly changing and highly competitive markets, many privately... Read More
A well known, national chain of restaurants discovered that certain... Read More
O'Hare Chicago prom limo ..You know you need a business plan. You probably realize... Read More
There is so much small business information available today that... Read More
Canada's lean leaders need to look beyond the horizon and... Read More
Writing a Business Plan these days is tough, venture capitalists... Read More
Is your business growing as fast and effectively as it... Read More
Possibly THE most frequently asked question of me is "What... Read More
Every decade we seem to come up with a buzz-word... Read More
Let us look at a few of the big distribution... Read More
If you own the mid-size business and actively work in... Read More
David E. Gumpert, author of Burn Your Business Plan, often... Read More
The current state of the available technology at the disposal... Read More
Have you been in a "brainstorming" session where each person... Read More
Many companies are reluctant to dive into outsourcing ocean because... Read More
One of the key challenges for any business is to... Read More
If you are a manufacturer wanting to use your business... Read More
What gets measured gets done.How do you keep your business... Read More
ACTION PLANNING: Action Planning is a process to develop strategies... Read More
Writing a business plan is an essential part of the... Read More
Business seems to drop, slow or even stop during the... Read More
Every new business owner knows that a business plan is... Read More
In 1997, David Steele was making the transition from a... Read More
Too much goal setting and strategic planning can leave you... Read More
"Did you hear what your competitor is doing?" This question... Read More
Why do so many companies languish and watch as their... Read More
How often does your company make a quantum leap forward?... Read More
Strategic Planning |