Acquisitions – They don’t always turned out the way you want

Acquisitions can turned into massive money losing events. As investors we should always be sceptical about things always working the way we want.

Here is a nice plug from Firmex which shows some of the worse acquisition disasters :

What investors can learn from this is to managed their expectations about acquisitions.

  1. Are the company extending themselves
  2. In the event that this fail, would it make the overall company a much poorer investement?
  3. Has the company successfully acquired and integrate parcels of business before?
  4. Would the financing put the company structure in a worse of state
  5. Is the IRR provided by the management realistic?

Here you can see a lot of rushed acquisitions, not enough diligence done verifying the fundamental data.

Locally I can remember OSIM acquisition of Brookstone being utterly bad. OSIM have come back strong, and i am sure they learnt a valuable lesson

But not all will be so lucky to learn from this.

  • Nguyen Khac Viet Bach

    Another great article. Thank you very much Drizzt.

    Only when a company which possess a competitive advantage acquires another company which also has related competitive advantage that such acquisition prove to add value for the shareholders. Moreover, it is essential that the acquirer do not overpay for its acquisition as well as not dilute its shares in the process.

    Jack Nguyen

  • Kyith

    Yeah but not sure how much good will they should purchase it at. A lot of the acquisition are synergy based I guess you have to conservatively estimate that there is no synergy and it increase the number of sales channel

  • Nguyen Khac Viet Bach

    I agree with you. Since “synergy” is very hard to quantified, it is best that we start with assumption that there would be no “synergy”. Hence, we can evaluate the new combined company as an add-in like 1 + 1 = 2 and be patient to judge whether the new investment has brought in value for the acquirer company before we invest. The thing is there are few investors actually do in-depth research on the company that was being acquired, be it a publicly traded company or a private company.

    I wish the companies can be more transparent in their deals and show the investors the financial report of the acquired company. If that is possible, we may be able to estimate whether they overpaid or not.

  • Kyith

    They won’t make it easier. It will be more easy for us to see through =)

  • Nguyen Khac Viet Bach

    Hell Yeah! Oh well..that’s why we need to arm ourselves with a good dose of skepticism!