Over the years, this CEO Blogger has observed many acquisitions in business that have failed. This is because deals have often been based on emotion, rather than cold hard facts. There is sometimes pie in the sky analysis that presumes assumptions and cost savings that never seems to happen. And, if the acquisition involves a merger of two failing companies, how can that ever amount to one strong company.
The fundamentals have to be there to make an acquisition work, especially if the deal requires borrowed money. Loading a company up with debt that is dependent on future financial results, may work well for the Senior Management, that sometimes benefit personally from the deal, but rarely seems to make the company stronger. And, if the numbers don't happen, it can even lead to bankruptcy, or the break up of the company.
Any acquisition must be viewed with skepticism, not rose colored glasses. The hard, "what if" questions must be asked to determine real value, not the best case value that will always be the perspective of the seller. And, the value paid must be predicated as much on future potential and trends, as on past performance, or multiples of pre tax profit. Yes, there could be some efficiencies gained by combining two or more companies; but usually not as much as presumed as the basis for the deal. Acquisitions must be done with extreme caution to avoid a huge mistake and loss. Significant Due diligence can never be too much. Take it slow to get it right.
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