10 Things to Consider When Examining a Potential Business Acquisition

Guest post by: Mike Pendrith
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10 Things to Consider When Examining a Potential Business Acquisition - By Mike Pendrith

When contemplating the acquisition of any company, prospective buyers should examine each of the following during their due diligence process:

1. Financial Statements

Carefully examine the Financial Statements of the company under consideration.

In particular, look at (a) Cash Flow (for the ability to service existing debt, ability to service any planned future debt, funds potentially available for market expansion or equipment acquisition, and the ability to repay the owner's paid-in capital).

(b) Balance Sheets - It is important to understand the current debt levels and the timing of the obligations. In addition, one must assess the Current Assets (A/R, inventory levels) and Current Liabilities.

2. Industry Analysis

Any potential buyer would be wise to do a thorough examination of the industry. What are the industry trends (is it growing, is it flat or is it declining)? What are the opportunities and threats to the industry (social, economic, political and technological)?

3. Competitive Analysis

Conduct a thorough analysis of the competition. How are they positioned? What are their strengths and their weaknesses? What is their current financial health?

4. Products / Services Analysis

What is the quality of the products or services offered by the company? What is the market reputation of those products or services? Are there any product liabilities? What is the current market demand for those products? Are there any opportunities to fill product / market voids?

5. Management

In addition, it is extremely important to assess the current management group. What are their capabilities? How well will they fit with the culture of your company? Will you keep any of the existing management or will you bring in new executives?

6. Asset Analysis

Understand the age and the condition of the existing equipment and the facilities. Determine replacement needs and costs if necessary.

7. Patents and Trademarks

Does the company own any patents and / or trademarks that are of value?

8. Lawsuits

Are there any current lawsuits against the company?

9. Synergies

Are there opportunities for synergy with your current company? Are there opportunities for cost reductions, margin improvements, market channel synergies, etc.

10. Key Employees

Identify the key employees below the executive level.

Are there people who are invaluable to the operation and success of the organization (engineers, product development personnel, scientists, computer programmers, etc.)? Would their departure hamper the progress of the business?

Having examined all of these areas,any potential buyers will be able to make an informed decision concerning the suitability of thecompany under consideration.

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10 Things to Consider When Examining a Potential Business Acquisition - By Mike Pendrith

About the Author: Mike Pendrith

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Mike Pendrith is the CEO of PerformancePoint Corporation in Toronto, Canada. He works as an advisor to owners of mid-sized and small businesses. Mike develops business plans for both start up organizations and existing businesses seeking funding for expansion purposes. Mike also works with senior managers in developing and implementing strategic plans in order to grow their businesses. For additional information, visit the websites at www.torontobusinessplans.com and www.performancepoint.ca
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