Potential Acquisition Targets – Pricing Strategies
As indicated in my last blog, I will again continue the discussion of issues that an acquiring company needs to address to get a better understanding of the potential acquisition target ― before a deal is finalized. I pulled much of this content from an article written for The International Reprographic Association (IRga) newsletter, where I discussed a few of the issues and presented my thoughts.
A key request to make of a potential target is, “Tell me about your Pricing Strategy.” Is it the intent of the potential seller to be the lowest bidder, no matter what the margin may be? You will be buying the sales of the company. If it is a “tuck-in,” can you fit those sales on your equipment and do it cost effectively?
The key element here is margin ― has the potential acquisition been charging enough on those sales for you to make the money/margin that you expect? You also have to factor in your expectations of quality and customer service. If you need to increase the selling price, you run a significant chance of hurting sales to the target’s existing customers.
You need a clear understanding of what margins are produced from the sales generated by the target company. This is whether the products are produced on the target company’s equipment or your own.
More issues 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.