Beware of generously and quickly calculating investors. At the moment things seem to be at a boiling point. Investors and buyers are out there trying to buy up almost anything that is not clinched and riveted. As if the excursions of a Swabian automotive manufacturer into the big wide world had not demonstrated impressively enough that money can sometimes be spent a lot faster than it can be earned. And they also found out that they are not necessarily worth more than the sum of their parts.
When the brand equity comes into play during the acquisition or sale of a company, the readiness to spend seems to know no boundaries anymore. Of course, there is a lack of true brands. Brands whose passport carries the 7-elements origin, history, profile, positioning, awareness, image and protection, are the brands that truly turn a name into a brand, in our opinion. However, this deficiency should not lead anybody to overlook that at the end of the day this has to compute. He who paid more for a business or a brand than it is actually worth is soon going to get to a point where the irresponsible and value destroying cost-cutting is beginning.
One plus one equals two. And never three! It is true that there is a tremendous amount of money in this world and that more and more money is pushing into investments. However, this is exactly what should lead us to carefully invest money, because this is the only way to generate profits which create along with the return-on-interest also trust, which is an indispensable prerequisite for enduringly solid money markets.
He, who thinks he can successfully correct a purchase price that was too high through cost-cutting, is mistaken. Many expectations into corporate acquisitions made today are going to burst like bubbles and cause more harm than good. Cutting jobs, lowering quality standards, reducing investments into the market and into research and other measures in order to show profit improvements quickly, swing to the opposite extreme at one point or another. What haven’t buyers and investors promised in the past few years and how much of it really endured. To come back one more time to that Swabian automotive manufacturer, the successes achieved shortly after entering into the American business, didn’t even last ten years. And all the cost-cutting measures, of which also the competition boasts, have lead to, amongst other things, a big part of the subcontracting industry being faced with ruin.
Nowadays there is a lot of talk about corporate governance. Mind you, talk about it. If the protagonists were really serious about it, they would need to abide by their own rules for the acquisition and sale of a company.
Politics has tried recently to bring light especially into the business conduct of hedge fonds. To no avail. Shouldn’t this fact be reason enough to use ones common sense and a calculator to calculate corporate assets. This could spare us a lot of trouble.
Because 1 + 1 = 2!