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A company wants to acquire our company, what to consider?

Someone asked on Oct 09, 2018 - 2 answers

Hello,

I would like to get your opinions on what to consider if a competitor approaches us to acquire our company? My structure in mind is as follows:

1) Future value

*determine a range of possible valuations (DCF, transaction and trading multiples)
*good deal for shareholders?
*alternative buyers?

2) Synergies

*distribution
*marketing
*back office functions

2) Integration issues

*what happens to mgmt team?
*cultural fit
*employee job security?

I am not sure with the synergy part because we are not acquiring them, they are acquiring us. If that was us acquiring them, of course, synergies are one of the most crucial things to look at. However, I am selling my company, should I care about synergies or integration issues that will be created after the acquisition?

What else can we add to the structure?

Thank you very much.

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Benjamin replied on Oct 10, 2018
ex-Manager - Natural and challenging teacher - Taylor case solving, no framework

Hi,
Since they want to acquire us, I would not focus too much on the synergies, because this matters to them of course but not so much to us. Also I would not focus too much on the methodology to establish the value of the company (this is more of banker job), but on the criteria to make the decisionBelow my recommanded approach

1. Are we willing to sell ?

  • How do the price they are offering compare to our valuation of our company ?
  • Are we willing to sell our company in any case ?
  • What will happen to staff when the company is sold (management, workforce) ?

2. Is there a threat if we don't sell ?

  • What will they do if say no ?
  • If they acquire another competitor and form a larger company is is a threat for us ?

3. Can we respond to the threat ?

  • pro-actively looking for partnership / other acquisition on our side
  • Launch lobying action to slow down their progression
  • any other action to secure our business (improve offer, secure customers, etc.)

Hope this helps
Best

Benjamin

Vlad replied on Oct 09, 2018
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi,

It's an interesting case. I like your approach, however, it can be modified:

  1. You can ask regarding the synergies in the clarifying questions at hte beginning of the case. Synergies are a part of Valuation and technically if the company acquiring you gets synergies, you can get a better deal
  2. Asses the current valuation of the company at the beginning. Check if there any growth opportunities that are not considered in the current valuation.
  3. Look for alternative ways to sell the company:
  • Physical assets (land, machinery, warehouses, etc)
  • Parts of the network (i.e. stores), Subsidiaries
  • Intellectual property, patents, R&D portfolio
  • Products / product lines
  1. Best!

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