I often speak with acquirers that think they are getting a great deal on a target company when really they are giving struggling business owners a way out. Often these buyers equate value to revenue or “adjusted EBITDA” rather than looking at the full picture of a business’s value.
Last week, two Spain Banking giants proved that size does not equal value. Banco Santander SA announced it would acquire Banco Popular Espanol SA for 1 euro.
As Spain’s fourth largest lender, Banco Popular Espanol (OTCPK:BPESY) saw a €137 million loss in the most recent quarter of 2017. Santander will need to raise around €7 billion ($7.88 billion) in fresh capital to steady the group’s combined balance sheets.
While the size of these companies are much (much, much, much) larger than the businesses I work with, this situation is all too familiar. Unfortunately, the buyers I work with don’t realize they are trying to acquire a dying giant until someone (like me) tells them!
My advice to buyers is to understand the market and remember that size does not equal value. If a target needs the buyer to pay significant past due debts, provide significant working capital, and/or turn around declining sales; buyers should consider that they might be saving the seller from a mess.
How much should you pay to clean up someone else’s mess? Santander is paying 1 euro!
Ben Kotch is a managing director and investment committee member at Acquis Capital, LLC, a private investment firm that specializes in acquisitions. He has extensive experience with both private and public companies. Ben graduated with an economics degree from Bentley University where he concentrated in entrepreneurship and law.
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