Factors affecting Acquisitions

Acquisition is a normal practice of many companies around the world. When we think to grow, the first way which comes to mind is “Acquisition” because it is a rapid and easy path to expansion. As a result of the current economic conditions where small and medium sized or even (in some cases) large companies are experiencing difficulties with running their operations effectively, the rate of acquisitions is increasing.

Whilst acquisitions can give rapid benefits, they can negatively affect your company if the following factors are not considered before acquiring a company:

1. Is the target company a strategic fit with your organization? What is the level of compatibility?
2. What may be the stakeholders’ reactions to this transaction? Analyze the risks and benefits of the acquisition and assess any stakeholder’s recommendations to avoid any potential issues.
3. Does the target company have a good reputation in the market? Will it add value to our company or will it devalue existing goodwill?
4. Does the target company have enough market share to make the acquisition successful or is it better to grow internally?
5. Will you be able to share your recourses after acquisition? For example, distribution channels, transportation etc.
6. Review the audit reports of the company for last 3 to 5 years and take recommendations from your company’s financial advisers.
7. What is the culture of that organization? Is it possible to change that culture if it does not match with your company’s working style/culture?
8. Analyze the strengths and weaknesses of the target company. Are you able to overcome their weaknesses and turn them to strengths? How will their strengths benefit your company?
9. Have any credit rating agencies undertaken any assessment of the target company?  Is the potential company involved in any lawsuit?
10. Investigate the major customers to see their satisfaction with the target company’s services.
11. Is there any chance of resistance from their employees? Are you able to manage any such change and resistance?
12. Do they have skilled workers or will you be hiring new skills?
13. Consider their relations with the suppliers? Do they provide sufficient credit facilities or not?
14. If you are going to a new market, for example U.S.A, acquisition will help to break barriers to entry. Acquisition can provide quick growth and immediate access to the new market.
15. Consider anti-monopoly legislation of your country as complying with this legislation is essential.
16. Acquisition will result in economies of scale and economies of combined operations.
17. Consider their level of short term and long term debts. Will you be able to pay off those debts? Acquiring a highly geared company may jeopardize your company’s goodwill.
18. Review the financial statements of the company to see if there is any indication of fraud and error. This may require using effective automotive tools like Virtual Data Rooms.
19. Calculate the ROCE, EPS and ROI ratios of the target company to check if it has the potential to provide reasonable returns.

Global Kap’s Virtual Data Rooms:

One of the most effective ways to get professional help in acquisition transactions is to use Virtual Data Rooms. Virtual Data Rooms analyze and audit the target company in various ways, including:

• financial audit,
• legal audit,
• production audit,
• compatibility audit,
• external audit,
• internal audit,
• managerial audit and many other audits

Virtual Data Rooms can provide the best recommendations on whether the target company should be acquired. Most importantly, all the transactions take place online in a highly secured environment which eliminates the chances of fraud (very common in acquisition transactions).