How to Create a Successful Merger or Acquisition - A Case Study for Entrepreneurs
How to Make Acquisitions in a Down Economy
Making acquisitions in any type of economy normally requires such basics as considering the benefits of acquiring an asset both in the short-term and the long-term. This will include evaluating the current value of the asset and adequately projecting the worth of that asset in the future, as well as determining how quickly the asset could begin to actually generate returns for the buyer. When the acquisition is being conducted during a down economy, additional efforts must be taken in order to minimize risk and enhance the chances of posting some sort of gains as the result of the purchase.
Investigate the current market value of the asset under consideration.This may or may not be the same as the asking price for the asset. Before making a commitment, you want to know how much you could sell the asset for in today's less than desirable economy and compare that amount to the seller's price. If the 2 figures are somewhat close, further consideration of the acquisition may be worthwhile.
Project the future movement of that market value.Depending on the nature of the asset and how the economy is affecting the value of that asset, there is a chance that the market value will either increase or decrease over the next year or so. Look beyond this short-term shift in value, and attempt to determine what the asset will be worth several years from now, taking into consideration all known economic factors. This will give you some idea if the acquisition will ultimately generate profits or will end up posting a loss that could undermine the ability to hang on to your other assets.
Consider any assets that may be included in the acquisition.If the purchase involves buying a company, determine if some of the holdings of the business could be immediately sold after the acquisition to offset the cost of purchase without harming the core operation and its ability to generate revenue.
Identify any liabilities that may be connected with the acquisition.Should that company currently owe debts that would be transferred to you in the event that the acquisition take place, make sure that debt would not be enough to cripple your current financial status.
Negotiate the asking price based on the information you've collected.Even if the projected risk is somewhat low, you still want to acquire the asset for the best possible price. Make a counter offer that is slightly below current market value and continue to incrementally raise that amount until a price is reached that both the buyer and seller can agree upon.
- Even after performing due diligence, there is always the chance that economic conditions will shift in an unanticipated direction. As a result, you could incur significant losses until that negative trend reverses. Unless you have enough resources to ride out the down economy, delaying the acquisition for a period of time may be a good idea.
- Don't rush when considering an acquisition during a down economy. Take the time to explore every aspect of the purchase and its ultimate effect on you and the pursuit of your personal financial goals. Only proceed when you are convinced there is a reasonable chance of success and the purchase price is within a range you are willing to pay.
Video: Is a Recession a Good Time for Mergers and Acquisitions?
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