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As a seller, you rarely hear a company admit that they paid too little for an acquisition. You do hear a lot about companies paying huge prices for an acquisition only to sell the company later for a fraction of the price. As a buyer, paying too high a price is one of the primary reasons why acquisitions fail.

Companies commanding a premium price in an acquisition must have superior positioning, superior performance or superior traits in areas like management, operations, personnel, culture or quality. Too often buyers "overpay" because they fail to recognize the impacts that these "premium" factors have on the success of the acquisition and on the price they should pay. So, they buy the company and then overlay their own culture, management style or operating processes without a real plan in mind. This in turn affects the acquired company’s performance, and they end up squandering customers, employees, sales and profits.

Determining the value of the business to be acquired is the primary purpose of our financial review and evaluation. We start by evaluating the candidate company’s financial organization. The scope of this evaluation includes:

  • Analyzing the financial position and recent trends including financial ratios and debt structure
  • Evaluating financial policies, practices, controls and personnel

We then concentrate on determining the appropriate range of prices to be paid for the business. We accomplish this by combining the historical and projected financial analyses together with all of the factors critical to a successful acquisition, paying special attention to those factors which might affect the sales price. The scope of this work would include:

  • Summarizing the work performed in all areas of the company and identifying those factors affecting the targeted company’s value
  • Assessing the likelihood that the financial projections will be realized by reviewing and evaluating the company’s strategic and operational planning
  • Developing alternative combinations of price and terms and testing the projected financial performance of the company under each alternative
  • Negotiating the final price, terms, conditions and financing structures
  • Ensuring that all terms are reflected in the documents used in closing the transaction

The result of our work is a combination of highly interdependent factors:

  1. the range of values,
  2. terms and conditions, and
  3. factors critical for a successful acquisition.

As changes to any of these factors are negotiated, we evaluate the impact on the other two factors before proceeding.