How Not to Overpay for the Business you Buy

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drjohn11aDr. John Psarouthakis, Executive Editor of www.BusinessThinker.com  

A carefully planned and executed search process is likely to improve your odds of finding a company with which you can be successful.  Too often, people rush into deals only to find out later that they did not purchase what they had expected.  They suffer negative business consequences, such as lower than anticipated profits and sales.  The alternative, careful planning may cost more initially and require more effort but is likely to lead to better business results in the long run.

In my experience in the acquisition process I found that as high as 60% of acquisitions made fail to meet the acquisition-performance goals, ROI, ROE, etc., that were set at the closing and which influenced significantly the price paid.  Just 25% met or exceeded those goals; the remaining 15% were indeterminate.  There is one overriding reason for this high rate of failure and that is overpaying for the acquired company.  Overpayment is a result of (1) an overoptimistic expectation of the market, (2) a higher-than-realistic estimate of internal improvements/developments, and (3) allowing of oneself into a horse race leading to a higher price than the business is worth, due to the bidding process that the seller has succeeded to establish.  In order to avoid as much as possible the elements mentioned above.

Reference: “How to Acquire the Right Business”,  go to www.amazon.com

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