FINANCE: Tips For Acquisitions
Recent Western Cape Business News
ALL investors can make a poor investment decision. Even Warren Buffett has confessed to making mistakes, and admits that he’ll probably make a few more; as he recently quipped in The Wall Street Journal: “I’ve never gone to bed with an ugly woman, but I’ve sure woken up with a few…”
Paul Austin of BDO Spencer Steward Services Cape Town says one should consider a few key issues that may stop you ‘waking up with an ugly woman’:
• Suitability: When assessing the suitability of a target, remember that most acquirers often overestimate the value of synergies. Thus conduct a thorough due diligence before an acquisition so that you have a realistic idea about what you are actually buying, or if you are undertaking a merger, what factors will produce synergy values or dis-synergy values.
• Economic assumptions: When forecasting synergies use up-to-date assumptions. Given the heightened volatility and uncertainty dogging the global economy, a review of the economic environment has become a crucial element of any due diligence process.
• Price: Acquirers often overpay due to a lack of information. A thorough due diligence may give one a good tool for negotiation.
• Don’t be impulsive: Acquirers need to resist being impulsive if the deal initially looks attractive and rewarding. Research the target using publically available information to gauge the market perception of the company. Collate the reasons the acquisition is a good fit for you and determine whether you understand the mindsets of the managers of the entity.
• Choose the right advisors: Choose the right advisors who have the necessary skills and experience in conducting research and analysis, who have an eye for detail, and can guide you during and after the acquisition process.
Len Schmidt of Cape Town’s Triangle Broking Services says smart buyers know that the economy may change for the better sooner rather than later and there are a number of strong buyers on his company’s book looking for good investments.
Recent multi million sales negotiated by him include for example, a transaction concluded at R7.2 million in the technical services sector. The buyer formed a joint venture with an established BEE grouping who have the required credentials to substantially increase business revenue through the introduction of large corporate client contracts requiring product and technical backup.
This venture required a further investment of R10 million to establish technical training facilities in all main centers which will provide technical back-up for the enlarged client base brought about as a result of this new combined venture.
He cautions would-be sellers and buyers in expecting a transaction to be completed in a short space of time. Some sales take months of patience and at times frustrating negotiations before the final agreement is concluded.
Sellers should also consider taking in financial partners as, often, buyers take an initial stake to allow them to settle down and thereafter taking up the balance of shares which could present a better yield at the exit stage giving sellers an acceptable return.
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