Many midmarket companies have long recognized the need to grow their businesses by acquisition to supplement internal organic growth. Particularly, in the present challenging low growth economy, acquisition may be the only means to significantly increase market share. It may also be the only viable avenue to acquire certain technology, vertically integrate company products and supply chains, procure attractive talent and brand recognition or expand geographically. For owners of companies looking to sell their business in a few years, an acquisition or two of other companies can add the “sizzle,” revenue and profitability growth necessary to effect a future successful liquidity event. In valuing businesses, size does matter, and a business that has successfully managed several acquisitions will often command premiums in the M&A marketplace both on account of increased earnings and the demonstrated talent of its management in successful acquisitions.
In a significant portion of acquisitions, however, buyers fail to achieve their original financial, strategic and business objectives – in many cases, spectacularly. Business study after business study have concluded that at least half, if not more, of business acquisitions failed to generate the desired results in either shareholder value or financial goals. As U.S. economist and writer, Irwin Stelzer, said, “when it comes to mergers, hope triumphs over experience.”
Originally published in the Orange County Business Journal - September 2013.
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