One Plus One Does Not Always Equal a Stronger OneByRaymond D. Matkowsky
Over the last 36 years I have watched one company after another think that they can buy their way out of collapse by merging with another in an equally weak position. In more cases than I can count it hasn’t worked as planned.
The source of the problem is has one of two possibilities and sometimes both. The first is debt. The acquiring company takes on a great deal of debt to buy the second. In many cases, it is thought that the new acquisition would pay for itself under a new management. The cash flow is never realized and the acquiring company is saddled with new debt it cannot afford. Sometimes it has to sell the acquisition for a loss.
I know of one supermarket that had the best sales per square foot of any other market on the east coast of the United States (a measure of value in the food industry). Yet, because of a series of disastrous acquisitions and the debt it took on over the years it found itself in bankruptcy.
A number of weak companies, both in retailing and manufacturing, have joined forces assuming that the synergy of the combined company would become a powerhouse in its industry. In most cases it wasn’t to be. When you take two weak companies and combine them, you usually just get a larger weak company.
When you are thinking acquisition, do your due diligences and remember that in order to succeed you must have a clear, rational plan. Wishful thinking has led to many failures. You do not want to be one of them.
Do you have any other suggestions, please share them with your fellow readers. Email me at rdm@datastats.com.
Copyright © 2015 Raymond D. Matkowsky
Raymond D. Matkowsky is the Chief Executive Officer of Data Stats, a consulting firm specializing in system or product improvement through mathematical and scientific modeling. He can be reached at rdm@datastats.com or through Data Stats’ web site at www.datastats.com |
