It’s that time of year again. The holiday season is a great occasion to spend time with family, celebrate with friends, give to charity, drink hot cocoa – and of course buy presents. Beginning with Black Friday, holiday sales are out in full swing with retailers trying to entice consumers with the lowest prices on gifts ranging from toys to clothes to electronics.
Fixating on price is not only limited to busy holiday shoppers: For acquisitions, executives too often focus on price. Most people make the mistake of thinking that is what an acquisition is all about, but the reality is it’s more about buying the right company.
Buyers should understand there are many different aspects surrounding a deal, many of which are not financial. Sellers may find value in other incentives such as healthcare for their family or involvement in their local charity, or even in intangible assets such as understanding and trusting the buyer’s strategic vision for the future.
The fact is, you can overpay for the right company and recover. Sure, it may take you a bit longer to recoup that extra $500,000 you spent, but you will still be successful. On the other hand, you can underpay for the wrong company and never recover. Buying the wrong company brings multiple hazards.
You may save money by getting it “on sale,” but the wrong acquisition could take you in a fruitless direction, ruin your reputation in the marketplace, or compromise your technology. At that point, you could have bought it for free and still lost! It’s like buying a shirt in the wrong size simply because it’s on sale. Sure, it was cheap, but you’ll never wear it because it doesn’t fit. You would have been better not buying it in the first place.