The fine art of friendly acquisition.

Abstract

It's no secret that the track record of corporate acquirers has been dismal. But there is a group that's had consistent success. A recent study on M&A reveals that between 1984 and 1994, fund investors at some 80% of LBO firms enjoyed returns equal to or greater than their cost of capital on their M&A investments. And this was true even though in many cases the prices paid for the companies were pushed up by competing bidders. Why are financial acquirers so much more successful than their corporate counterparts? It's because they approach the negotiation process differently. Most corporate managers treat acquisitions as a direct-march-up-the-hill kind of exercise: "I want to buy this company. Let's find out what it's worth, offer less, and see if we get it." The actual deal management is delegated to outside experts--investment bankers and lawyers. But fund investors treat deal management as a core part of their business conducted by a permanent group of experienced executives, and they have well-established processes that they stick to. The authors examine how the best acquirers approach all five stages of deal negotiations--screening potential deals, reaching initial agreement, conducting due diligence, setting final terms, and reaching closure--comparing good practice with bad, to reveal the secrets of their success.

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