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Acquisitions: Price versus Value


Every company CEO and CFO who desires growth through acquisition is concerned about the impulse to overpay. There are many techniques and disciplines to utilize while going through the negotiation process, as noted in Vincent Ryan's article in the March 2013 edition of CFO, "Eyes on the Price".



Joel Lesser
Joel Lesser
First, curb your enthusiasm. Many parties want to close a deal, but a detailed due diligence and objective analysis must be performed. If the transaction is too expensive, it could be in the best interest of the company to walk away. No organization should consider a single acquisition to be the savior.

Second, don't count on synergies. In many cases, the seller, not the buyer, reaps the value of synergies. For example, the upside of cross-selling products to the target's base is something that could be very expensive to implement and/or take years to materialize. Each synergy must be considered as an individual circumstance, and then put through a model to determine costs, risks, timing and cash flow implications.

Third, keep the models honest. The assumptions used in the model, are more critical than the model itself. Expecting revenue to grow at rates not supported by historical data or other hard evidence, is a recipe for disaster. Keep the assumptions realistic and achievable.

Finally, hedge the deal and track performance. Negotiate payment terms using an earn-out, based on future performance of the target company. This provides invaluable protection to the buyer, and can also be used as a negotiation tactic when the seller makes claims that seem too good to be true. Make a portion of the payment contingent upon hitting those claims. However, one must be able to track or measure these goals. Sometimes, a business will be attractive due to their intangible factors, which can be a challenge to model.

Price and value are different, and sometimes can be very difficult to differentiate. When experienced CFO's and CEO's team together, expert deal-making becomes much more successful.


Joel Lesser is a CFO who makes decisions - with his own brand of diligence, integrity and thoughtfulness - that ensure reliable foundations on which businesses and talent may grow.
Acutely aware of the domino effect of change, he constantly asks himself, “Are we not only doing it right, but also are we doing the right thing?”
www.joellesser.com/blog_index.html

Mardi 16 Avril 2013
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