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How To Evaluate an Acquisition Offer

    

Mergers and acquisitions (M&A) are fairly common transactions in the business world, and they are particularly prevalent in certain sectors such as healthcare and technology. Of course, even if companies want to join forces via M&A, they are not always able to do so due to antitrust laws, as just happened with the proposed Staples and Office Depot deal that is now off the table. When deciding whether to accept an acquisition offer, it is important to take the existing laws into consideration, as quite a bit of money may be wasted if the deal is ultimately challenged and blocked. Of course, there are a million other things to think about as well when determining whether to accept a proposal. Here are some of the top concerns when evaluating an acquisition offer:

Finances

This is usually the most important factor for a company looking to sell. Obviously, for teams who have devoted their blood, sweat, and tears to building a business, they want to ensure that they are receiving maximum value for all of their hard earned success. For many people, that initial price offer will make or break whether the deal is even viable, as some folks will take great offense to any low ball offers and may turn it down out of spite more than anything else. Hopefully, the parties will have interacted and negotiated enough before the offer is extended so that this does not happen, although it still seems to happen.

 

But, in addition to looking at the price on its own, it is important to think about the financial piece in the context of the larger deal, although some people may have difficulty with this. In some cases, the price offered for the business may seem low when only thinking about the direct exchange value-wise. However, the exchange may include other sweet terms, such as discounted stock options in the acquiring company or other financial incentives that are tremendously valuable even though they translate to a slightly lower price offer.

People and Culture

Depending on the leadership team’s level of engagement and emotional connection to the business, the type of people seeking to take over and the kind of business culture the incoming folks will implement often influence whether an offer is accepted. This is particularly important when there is a substantial client base who will undoubtedly feel the effects of these high level changes. As a result, it is important to examine whether the acquiring team will align with the business’s reputation and thus continue to have the same success in the relevant market.

 

Although leadership and personnel changes are not necessarily game changers for a company, they can be if there is a drastic shift in the way things are done and/or a complete overhaul involving the people that will be instituting those changes. Granted, for a complete buyout, a company may not be overly concerned with how things are run post-deal. But, in situations where some of the staff will remain or the very nature of the business is at stake, the incoming team and the culture they intend to implement are relevant.

Vision

Obviously, a business’s leaders and the corporate culture play an important role in a company’s direction and success. But, planning, budgeting, and an overall vision are extremely important components as well. There are some huge companies that acquire smaller businesses in order to put together a large, national infrastructure to bolster its operations. However, there are some corporations that basically devour smaller companies with no intention of integrating them into their structure, which mainly occurs for the sake of eliminating competition and driving up revenue. Again, how a company evaluates this particular aspect of an offer is really dependent upon how involved the leaders will or will not be subsequent to the closing of the deal.

Other Options

Even if there is an incredibly attractive offer on the table that does not mean that the selling company has to take it. For one thing, there may be competing offers worth exploring coming down the pipeline, and it is not always wise to jump at the first opportunity. In other instances, there may only be one offer on the table for quite some time, but that may not be a reflection on the company’s worth but merely a product of the existing economic environment. Ultimately, any acquisition offer must be considered in the context of the competitive landscape, the health of the pertinent industry, as well as the overall economic climate.

 

Deciding to sell is usually a tough decision and finding the right buyer can be even more difficult. In the end, when evaluating an acquisition offer, there will be competing priorities depending on the perspective of each company leader, but none of these things can really be considered in a vacuum.

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