There are no “rules of thumb” in the pursuit of companies to

buy. Each purchase opportunity has to stand on its own merits.

There are, however, attributes of acquisition candidates that

need to be defined for what they really are before additional,

limited resources are put at risk in a potential deal. It is

absolutely critical for any proactive business buyer to

understand, consider and deal with specific business

characteristics that add unnecessary financial risk to the

investment opportunity at hand.

The purpose of this article is to highlight characteristics of

acquisition candidates that you should consider absolute “deal

killers”. These are brought to your attention because it is

very common and natural to get so far down the due diligence

trail on a company you have worked so hard to find, that IS

for sale, that is right in your industry “comfort zone” and

not see the inevitable financial disaster looming down the

road because you became “blind” to what the future business

potential will be, versus the potential of what you think it

could be!

Buying Quality Businesses is a “Number’s Game”

There is a direct relationship between perceived value of

something that is in very limited supply and the time and

effort you have invested to find it. Quality businesses, with

extraordinary growth potential, that are for sale, are like

the proverbial “Diamond in the rough” or “Needle in the

haystack” analogies … it takes removal of tons of dirt and

mounds of hay to find what you seek!

In any proactive business acquisition pursuit, a seasoned

business buyer will tell you that finding viable companies

that can be purchased for reasonable terms is a “number’s

game”. Thousands of company candidates, that lead to hundreds

of contacts, which lead to ten’s of acquisition conversations,

that hopefully lead to one company purchase!

Going into any business acquisition effort, knowing what it

takes to find and eventually secure a business purchase deal

has a dramatic affect on the definition and your eventual

allegiance to your business purchase criteria. If your

purchase criteria are too “tight” and your commitment too

rigid to that criteria, you may quickly feel you’ll never find

your “ideal” company to buy!

Absolutely, Unquestionably, No Brainer, “Deal Killers”

Attempting to find and qualify businesses to buy is an

iterative and complex process. Each opportunity eventually

stands on its own merits and purchase compromises will prevail

because it is unrealistic to think you will find the exact,

“perfect” acquisition opportunity. There are, however,

business attributes, like these listed below, that are best

left with the current company owners:

·         The sellers have previously terminated two or more purchase

      contracts

·         The current business owners have no clear, compelling

      reason to sell

·         The sellers cannot provide basic financial information

·         The business is completely dependent on one key employee

·         The seller will not provide any form of “earn-out” based on

      future company performance

·         The business relies on limited natural resources to produce

     its product or service

·         Improper application of the company’s product/ service =

     major $ liability

·         The company has not been profitable for the last 3 years

·         Pending significant legislation possibly impairs future

     growth

·         Key personnel will not sign employment contracts or non-

     compete’s

·         Payment on acquisition debt exceeds 50% of after-tax

     profits

·         There is an insufficient pool of labor or talent to grow

     the business

·         There is no technical or knowledge barrier to entry for the

     targeted business niche

·         Key patents are about to expire

·         Only one supplier can provide a key product/ service

     ingredient

·         One customer equals greater than 20% of total annual sales

     revenues

·         A viable competitor offers ALL the products and services

     your customers need

·         There is no customer purchase loyalty

·         The overall demographics of your targeted market(s) are

     negative

·         Extraordinary product/ service warranties are firmly

     established within the industry

·         The product must be manufactured overseas to effectively

     compete

·         Targeted, primary markets have had no growth the last three

     years

·         There is existing or pending, noteworthy legal encumbrances

     against the company

·         You determine the current business owner lies to you about

      “small” details

Assuming you have clearly defined and documented your critical

Business purchase criteria well in advance to starting your

business acquisition program, you will often start to

compromise your purchase criteria as you continue to invest

more time and money to find your “ideal” acquisition

candidate. This is a “cardinal sin” in merger and acquisition

pursuits. Compromising your purchase criteria is natural

tendency, but ultimately a fatal mistake!

The importance of defining, understanding and truly committing

to your critical company attributes is most important during

these frustrating times. The most effective business buyers

are disciplined business buyers. They are those who can

decisively deal with uncovered negative company attributes and

immediately move on to the next purchase opportunity

About the Author:

Mark Smock is President of www.business-buyer-directory.com,

the FIRST international business buyer directory of its kind.

Business Buyer Directory provides a non-traditional means for

proactive business buyers to locate businesses for sale

worldwide that meet their exact registered purchase criteria.

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