Selling a business Greenville SC

Acquirers

Inorganic growth, or growth through acquisitions, solves a dilemma for many companies. Some companies need to tap inorganic growth because their own product lines are maturing. Others use inorganic growth as a means to diversify. Still others view it as the most efficient way to build out necessary resources and capabilities for their core business.

One’s decision to acquire vs enter into a joint venture, alliance or contractual relationship is driven by the level of their company’s need for control, risks, and relationship. Achieving success with acquisitions is not easy. During a transaction, the acquirer typically has 90 days to accomplish various goals, and it all has to come together and fit like a glove. From valuing the target, to identifying and evaluating synergies, to performing thorough due diligence, to financing, negotiating, and structuring the transaction, there are countless ways in which an acquirer can compromise success.

The true benchmark for measuring performance in acquisitions is investors’ required returns. This is defined as the returns investors could have earned on other investment opportunities of similar risk. From the most comprehensive body of research we have seen, only 20-30% of all acquisitions earn returns significantly in excess of their cost of capital.* The low success rate does not mean that acquisitions are not a smart investment, rather the research shows that most companies do not approach acquisitions with adequate preparation.

* Research by Dr. Robert Bruner, Dean of Darden School of Business, UVA (Deals from Hell, 2005).

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