3 Signs That a Company Isn’t Worth Acquiring
Acquiring a company brings many benefits. You can expand market reach, bring on new products or services, secure patents, gain new employees, and boost revenue.
And that’s just the obvious advantages.
Of course, an acquisition can also bring problems. To avoid these challenges, you must know the signs of potential trouble.
First, just because a business is available at a deep discount doesn’t mean it’s worth acquiring. The price is reduced for a reason.
Maybe there’s financial dangers, strife within management or ownership problems. The possible reasons are almost endless.
So find out the facts and don’t skimp out during the due diligence process. Make sure you know exactly what you’re getting into and that proper terms and pricing adjustments are made to reflect these issues.
Second, please understand, “having potential” is a dangerous reason to buy a business – especially when dealing with start-ups. The fact is, many companies just don’t make it. Particularly with early-stage businesses, they go bankrupt or fail for many reasons.
If, for example, your assessment of the market potential differs vastly from management; they are overlooking or underestimating significant risks to growth; you don’t have a mastery of the regulations that drive revenue; or you find that they’re not doing anything unique, compelling, or disruptive enough to steal market share from established competitors, then step back and really evaluate if this business has what it takes and you can make it scalable.
When it comes to market share, keep in mind that larger businesses often buy up-and-coming competitors just to shelve them. For example, General Electric neutralizes threats to their business by acquiring smaller companies with unique/compelling/disruptive products.
In many cases, GE has invested millions in R&D, marketing and distribution for one of their own products and can’t afford to see business stolen away by new and better systems or technologies.
For smaller businesses, however, this is often a bad strategy. You’re better offer acquiring to grow your offerings – taking a competitor off the playing field is an added bonus.
And finally, make sure the people coming with the company you acquire are functional, particularly at the management level. In addition to bringing new skills to your team(s), the existing staff should work well together.
Acquisitions are similar to marriages. When you become a husband or wife, you don’t just marry your spouse – you marry the family too.
You can sometimes uncover employee and management problems by talking to vendors, customers and other strategic partners. Ask about relationships with the people at the company you’re considering for acquisition.
Also, spend considerable time talking with management and ownership. You’re about to get married to them, so you better be able to live together.
Additionally, most employees dislike their bosses, so their opinions may be biased. However, if an employee is frustrated with someone they work with, they often want someone to vent to. You may be that person.