Further Questions To Ask Potential Acquisition Targets
As I mentioned in my last blog, I am going to address certain issues that need to be asked by an acquiring company of a potential acquisition target. I have answered these questions previously in an article written for The International Reprographic Association (IRgA) newsletter. Below are a few more questions:
- “Tell me about your sales.” There are many aspects to this question. If you want to enter into a new market through an acquisition, then you may be interested in the company’s sales in that market rather than its overall quantity of sales. If, however, you are looking to fill excess production capacity at your company (which is called “tucking in” the acquisition), quantity of sales might be your focus.
- “What about the quality of the Acquisition’s sales?” Although the sales quantity is important, you still have to ensure that the sales quality is strong as well. If you are going to “tuck in” the sales and the margins are not what you need to meet your operating profit expectation, you have a situation in which you have to make a difficult choice. If you raise prices, you stand a strong chance of losing that customer. If you do not raise prices, you run the risk of over-paying the seller for that customer.
It is imperative that you get a good understanding of the seller’s pricing and the quality of its major customers, i.e., the length of time doing business with them, the company contact, its payment history, etc.
- “What about administrative costs?” Remember that the administrative costs of an acquisition, such as legal fees and due diligence costs, are very similar for a small acquisition as they are for a large acquisition.
These are just a few questions you might want to consider. More questions to consider will be addressed in the upcoming months. If you want to chat, give me a call at (201) 523-6326 or email me at email@example.com.