Tip: Avoid Bad M&A Deals by Knowing When to Walk Away - Modern Distribution Management

Log In

Tip: Avoid Bad M&A Deals by Knowing When to Walk Away

Many transactions fall prey to the same mistakes; learn to recognize them.
mtow-blog-image
Author
Date

Not knowing when to walk away from an M&A deal – or suffering from the “crazy to win mind-set" – can lead to disastrous mistakes, according to J. Michael Marks in Distribution M&A Playbook.

When evaluating a potential purchase, a responsible seller will invest tens of thousands of dollars in due diligence. But, Marks emphasizes, that initial investment can cloud judgment down the line.

"Imagine that you make a fair bid based on the market and what you have in your value-creation plan," Marks says. "Then the seller’s investment banker comes back and tells you, 'My client really likes you as a buyer, but your number is too low and needs to increase by 16 percent.'"

Marks warns against taking these estimates lightly.

"You know that 16 percent more puts you a bit higher than the higher market range but it is still in the market window. And, after all, they are only estimates anyway. So you adjust some of your assumptions in your value-creation plan. You have already invested close to $100,000 in the deal, so you want to move forward. But what happens when there is a third round of bidding?"

Marks has seen large firms fall for this, especially private equity firms struggling to find good companies to acquire. Over the next several years, he claims, they will sell off strategic parts of the business to try and get back above water.

'This is the No. 1 driver of zombie investment funds – those so underwater that the shareholders can never get an acceptable return," Marks says.

Read more common M&A mistakes to avoid in Distribution M&A Playbook.

Share this article

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

Get the MDM Update Newsletter

Wholesale distribution news and trends delivered right to your inbox.

Sign-up for our free newsletter and get:

  • Up-to-date news in a quick-to-read format
  • Free access to webcasts, podcasts and live events
  • Exclusive whitepapers, research and reports
  • And more!

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.

Learn More about Custom Reports

Request a Market Prospector Demo

  • This field is for validation purposes and should be left unchanged.