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when to walk away from a deal

when to walk away from a deal

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Published by Bipin Nair
HBR article
HBR article

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Published by: Bipin Nair on Dec 23, 2012
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06/05/2013

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by Geoffrey Cullinan, Jean-Marc Le Roux, and Rolf-Magnus Weddigen

.!! •Deal making is a glamorous task but without due diligence deals tend to fail .• A well known term • Frequent news about companies making deal • Most of the deals not seem to be profitable.

• Due diligence is treated as a routine task • Includes only financial data analysis Eg: US grocery chain Safeway acquiring Dominick’s. an innovative regional grocerer .

customers and other factors . economy.• A clear analysis of strategy • The ability to realize values from the deal • Need to look into business.

• 250 M&A executives were interviewed • Half said – Diligence couldn’t reveal major problems • Targets were dressed up to impress • Only 30% had a good deal .

• Should answer four questions What are we really buying? What are the target’s stand alone value? What are the synergies and skeletons? What is our walk-away price? .

eliminate it • Dig beneath and find the real picture • Use secondary sources • Always get ready to walk away from a deal • Eg: Bridgepoint deal for FruitCo .• Always have a preconceived picture.

• • • • Customers Competitors Cost Capability .

• What benefits the assessment of the target gives • Determine true value of the company • Uncover the hidden treasure  Explore more  Learn more  Make the deal successful .

• Tend to over estimate the synergies • Distinguish synergies • Measure synergies based on cost .

Final price ready to pay after negotiation • Should not include all potential values • Include all the cost-benefits attached • Think about the differences Eg: Think about differences in compensation systems .• Walk-away price.

have an efficient due diligence • Due diligence Its about humility Testing every assumption Questioning every belief Think & fix all the problems .• To have a good deal.

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