When looking for a high quality company to acquire, it doesn’t take long to discover that is it primarily a seller’s market out there. For every business in your targeted industry worth owning, many more will turn out to be troubled, a poor fit or maybe both. Therefore, it is always worth spending the time to determine why a seller is selling.
Do your homework- sellers may have good reasons to sell – and equally good reasons for not wanting to share that information with you. Look beyond the sellers words and search for any unstated motives, including:
Are there personnel issues? Has the company lost key executives or employees that were vital to its past success? Try to determine why the employees left.
Are there competitive pressures? Is significant new competition threatening the company? Are new products from the competitors coming to market that will reduce market share? Is the business underinvested in technology, giving other firms an edge in meeting market demands?
Are there cyclical factors? Is the company’s business vulnerable to economic cycles and has it recently passed a significant peak?
Are there legal concerns? Doe the company face litigation risks that have the potential to come more expensive than advertised?
Is there regulatory risk? Have new federal, state or local government regulations been proposed that could seriously affect the company’s future profitability?