Acquisitions can turned into massive money losing events. As investors we should always be sceptical about things always working the way we want.
Here is a nice plug from Firmex which shows some of the worse acquisition disasters :
What investors can learn from this is to managed their expectations about acquisitions.
- Are the company extending themselves
- In the event that this fail, would it make the overall company a much poorer investement?
- Has the company successfully acquired and integrate parcels of business before?
- Would the financing put the company structure in a worse of state
- Is the IRR provided by the management realistic?
Here you can see a lot of rushed acquisitions, not enough diligence done verifying the fundamental data.
Locally I can remember OSIM acquisition of Brookstone being utterly bad. OSIM have come back strong, and i am sure they learnt a valuable lesson
But not all will be so lucky to learn from this.
Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.
Readers also follow Kyith to learn how to plan well for Financial Security and Financial Independence.
Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Fee-only Wealth Advisory firm Providend.
You can view Kyith's current portfolio here, which uses his Free Google Stock Portfolio Tracker.
His investment broker of choice is Interactive Brokers, which allows him to invest in securities from different exchanges all over the world, at very low commission rates, without custodian fees, near spot currency rates.
You can read more about Kyith here.
- How Bad Were the Returns During the 16 US Recessions in the Past 100 Years? - June 27, 2022
- Learning to Invest in Individual Stocks & Proper Portfolio Management with Investment Quadrant 2022 - June 25, 2022
- JPGL vs IFSW vs Dimensional Global Core vs SWDA – 22-year Performance Showdown Comparison - June 22, 2022
Nguyen Khac Viet Bach
Saturday 30th of March 2013
Another great article. Thank you very much Drizzt.
Only when a company which possess a competitive advantage acquires another company which also has related competitive advantage that such acquisition prove to add value for the shareholders. Moreover, it is essential that the acquirer do not overpay for its acquisition as well as not dilute its shares in the process.
Jack Nguyen
Kyith
Saturday 30th of March 2013
Yeah but not sure how much good will they should purchase it at. A lot of the acquisition are synergy based I guess you have to conservatively estimate that there is no synergy and it increase the number of sales channel