When To Walk Away From A Dealby Geoffrey Cullinan, Jean-Marc Le Roux, and Rolf-Magnus Weddigen

Vikas K Murthy CB.BU.P2MBA11077

Deal Making…Can it stand alone..?????

• A well known term • Frequent news about companies making deal • Most of the deals not seem to be profitable..!!•Deal making is a glamorous task but without due diligence deals tend to fail

Why deals often fails..?

• Due diligence is treated as a routine task• Includes only financial data analysis

Eg: US grocery chain Safeway acquiring Dominick’s, an innovative regional grocerer

Effective Due Diligence

• A clear analysis of strategy• The ability to realize values

from the deal• Need to look into business,

economy, customers and other factors

What Do Studies Tell?

• 250 M&A executives were interviewed• Half said – Diligence couldn’t reveal major

problems• Targets were dressed up to impress• Only 30% had a good deal

Good Diligence Process

• Should answer four questionsWhat are we really buying?What are the target’s stand alone value?What are the synergies and skeletons?What is our walk-away price?

1. What are we rally buying?

• Always have a preconceived picture- eliminate it

• Dig beneath and find the real picture• Use secondary sources• Always get ready to walk away from a deal

• Eg: Bridgepoint deal for FruitCo

Remember 4 C’s

• Customers• Competitors• Cost• Capability

2. What is the target’s stand-alone value?

• What benefits the assessment of the target gives• Determine true value of the company• Uncover the hidden treasureExplore moreLearn moreMake the deal successful

3. What are the synergies and skeletons?

• Tend to over estimate the synergies• Distinguish synergies• Measure synergies based on cost

4. What is our walk-away price?

• Walk-away price- Final price ready to pay after negotiation

• Should not include all potential values• Include all the cost-benefits attached• Think about the differences

Eg: Think about differences in compensation systems

To summarize…

• To have a good deal, have an efficient due diligence

• Due diligenceIts about humilityTesting every assumptionQuestioning every beliefThink & fix all the problems