Question

Identify three characteristics you would look for in selecting a target company to acquire or partner with. Why do you believe these factors merit your careful consideration?

Answer 1

The main characteristics to be looked into while going for acquisition or patnering with other company include:

1. Reason why the target is ready to sell its business

2. Benefit to our company

3. Financial statements/ business valuation (target company)

4. Customer relationships of target

5. Market conditions

1. Reason why the target is ready to sell its business:

It is an important point to be looked into and should be given a priority while going for acquisition or business combinations. Understanding the reason behind the selling of the company and their future plans by doing this helps our company to plan our actions and future strategies effectively.

2. Benefit to our company:

Benefit that we are going to get by acquisition should be analysed carefully. It may either expand in customer base, patents, copyrights of the target company, technology benefit etc.

3. Financial statements/ business valuation (target company)

The very first goal of acquisition/ business combination is to create synergy. The acquirer is always concerned with the financial health of the target company. For this, historical financial statements, quarterly reports, audit reports, the assumptions based on which valuation of the company is done, its feasibility etc. are to be concerned. If the acquisition is going to affect our company adversely, no company would be interested in acquisition.

4. Customer relationships of target

The type of relationship that the target has with its customer is one of the key considerations as it directly impacts our company's brand value if the target dose not have good customer relationships or customers are unhappy with the target.

5. Market conditions

The way the acquisition or partnering with the other company is going to affect in the short run and long run on the business needs to be considered. Analysing the market conditions include competitors, the industry in which businesses operate, government policies, technological advancement etc. Some aquisition may be beneficial in the short run but not so in the long run. These factors needs to considered and analysed carefully.

It is always difficult list only three points which are to be considered for acquisitions as there any many more key points that are part of due diligence process and no point can be neglected. The acquisition should be analysed from various angles before taking a call.