Judgment call: in search of bargain businesses

By Steve Frobisher, PA Consulting Group

Judgment call

The question:

The Financial Times asked Steve Frobisher the question: "Many struggling businesses will be on the hunt for buyers during the next few months. For a lucky few with good turnround skills, such bargain businesses may turn into lucrative opportunities. But with so many business owners desperate to sell, how can you tell whether you are about to get a good deal or a turkey?"

The answer:

You can separate the bargains from the turkeys by seeing whether they fit into one of three categories.

First, fundamentally sound businesses that have been overburdened with debt. There’s no real turnround required here – just the ability to capitalise the business properly.

Second, fundamentally sound businesses with poor sales. The buyer will need the financial strength to survive the downturn in demand and the knowhow to restructure the business to refocus on valuable markets.

Third, organisations with long-term value potential and a compelling offering but sub-standard operations. The buyer will need the financial strength to fund the turnround period, but also the ability to drive the organisational and operational changes. This is the toughest (and longest) challenge but is also usually where the best bargains are to be found.

However, an acquisition is about more than spotting a bargain. It has to fit strategically and culturally as well. If not it could be a turkey.