An acquisition can increase revenue on day one. Whether it creates value takes longer to establish.
Before assessing a target, examine the existing business:
• Which products and customers generate the strongest returns?
• Where are cash flow, management time and capacity already stretched?
• What investment will the business need over the next few years?
• How much acquisition debt could the combined group carry through a difficult period?
Then apply the same discipline to acquisition due diligence. Model the purchase price, integration costs, working capital and capital expenditure. Test what happens if expected synergies arrive late—or do not arrive at all.
The key question is whether the acquisition improves the group’s cash flow and return on capital after the full cost of buying and integrating it.
A larger business is only a better business if its economics improve.
#BusinessAcquisition #CorporateAdvisory #CapitalAllocation
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