February 11, 2010

Selling the future…

When you look at the rules established in the leading companies concerning company acquisitions, you will note that more than half of those rules deal with the future.

Our clients ask us what information about their company like their balance sheets and profit/loss statements they should bring with them to our first meeting. We tell them that only their presence is required and this is sufficient. The financial statements that they mention are generally about the past results of the company. Plans about the future of the company can be found in their minds.

No one buys the past of the company when one is buying the shares of that company. If you want to buy the shares of my company, of course you look at the past results of the company  and then start the acquisition discussions.  During those discussions your focus will be on points concerning the future behaviour like what we can jointly achieve in the future and the gains this acquisition or partnership will bring you. It is the shared future that is finally purchased.

We can evaluate the past behaviour based on documents but there is no such calculation method for determining the future. We can only predict the future by utilizing our foresight. This foresight is generated by considering various scenarios for the future. It is important to prepare those scenarios together with your new partner who will share the future with you. The scenarios prepared with each potential partner will be different from the other ones. Each potential partner will imagine a different future with your company.

This is also the reason why there is an average a ratio of 2.5 between the lowest and the highest acquisition prices quoted for the same project, when we analyse thousands of projects we have dealt with until today. In other words, the value of your company depends on the future benefits that your potential acquirer sees in this partnership.

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