Avoid Overpaying for an Acquisition
Too often anxious or excited buyers overpay for an acquisition. While missing out on a deal can be terrible, overpaying for a deal can be much, much worse. This becomes even more important when there are other potential buyers. Deal frenzy can run up the purchase price. Don’t lose sight of proper business fundaments and make sure you stick to a logical plan and price. To help guide potential buyers, use these 10 critical guidelines to avoid overpaying for an acquisition:
1. Determine a Maximum Purchase Price – Be Prepared to Walk Away
The best deal can be the one you pass on. Far too many acquisitions fail because the buyer overpaid.
2. Understand the Seller’s Motivations
You must understand what matters to the seller.
3. Do Your Homework – Proper Due Diligence is Critical
Make sure you learn everything you can before you make a deal.
4. Sweat the Small Stuff – Do Not Ignore Red Flags
Do not ignore red flags. Make sure you look under every rock possible to understand where issues may lie.
5. Integration Expenses and Timeline
Make sure your management team and advisors are prepared to work through any business integration. It takes considerable time and energy to make sure you protect the value acquired in a deal.
6. Pay for the Value that Exists – Benefit from the Value You Bring
While there are exceptions, a buyer generally should not pay for synergies brought after the deal closes.
7. Use Experts (Both Internal and External) to Assess Business
If you are ever going to pay for expert advice, now is the time. Use the right accountant, lawyer and advisor to ensure the deal is executed properly.
8. Get to Exclusivity
Get exclusivity with a seller whenever possible to shut out other buyers for a period and have a seller focused on your deal.
9. Multiples are Tricky
Focusing solely on multiples can lead to bad decisions. You need to focus on the numbers that are driving the financials first. Then make sure you work with an advisor who can guide you towards the right price and multiple.
10. Trust Your Instincts
Do not force the wrong deal to acquire a business. Trust your instincts and be prepared to walk away if the deal doesn’t feel right.
If you want to avoid overpaying for an acquisition, you should read my full article on this topic at 10 Proven Ways to Avoid Overpaying for an Acquisition
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P.S.S. Videos on several topics are also available on the Inflection 360 YouTube channel.