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Business Acquisitions

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General assumption entrepreneurship

means starting a new venture and not

buying existing one Buying = starting from scratch

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Primary alternatives in acquisition decision

Entrepreneurship seeking initial venture---

---start new venture

---buying existing one

---franchised one

Established owner seeking growth---

---expand, open second unit----buy new related business

---if a franchise add to franchise units

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Considerations for making an acquisition:

---experience

---nature of the business---location

---business risks

---personal risks

---enterprise costs

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Acquisitions by established entrepreneurs

---more in numbers

---expand through expansion---vertical integration/horizontal

(complement the exiting enterprise)

Evaluating acquisition opportunities Evaluating the business ventures

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Evaluating a business involves three

categories of information

---business assets---operational performance

---business environment

Business assets--- Tangible assets andintangible assets

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Operational performance

---sales volume and growth

Evaluating marketing factors

---marketing strategies

--merchandise quality

---competition

---pricing tactics--promotional programmers

--distribution decisions

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--Manufacturing---

---product design

---process engineering--production systems

---plant utilization

---inventory control

--raw material supply

--product distribution

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Other operational consideration

---financial reports

---costing systems--insurance

--human resources

Business environment-

----conduct market research

--taxation factors

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Screening Acquisition candidates

Finding acceptable candidate

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Managing growth and transition

New venture pass through transitional

stages

---transitional stages are represented by anorganizational life cycle

(growmature---decline)

Organizational life cycle requires changes inentrepreneurial behavior

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Many entrepreneurs cannot adopt to new

responsibilities

Many cases venture survives but theentrepreneur is ousted

****The organization life cycle:

Inception---early growth---rapid growth---maturity and decline.

Some cos slow growth

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The entrepreneurs perspective---

Life cycle identified with

Startup---expansion---consolidation---revivaland decline

Three variables

--growth

--product / market definition

--organisation

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Consolidation stage

---completion

--marginally smaller incremental shares ofmarkets

---competitive struggle

---slower growth rate---weaker companies fail some are

slod,merged

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Consolidation occurs differentlymanufacturers may trim back operationsreduce product lines, reduce staff stream

line distribution system withdraw from highrisk markets

Revival stage---rapid growth can be

achieved by clever reposition of productlines and services through purposefulmarket segmentation

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---repositioning sets the stage for a strategy

of product or service diversification.

--to the extent that innovative products andservices emerge, the company can

experience a revival in growth.

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Sickness in SSIs

Causes of sickness

Internal causes:

1. Planning-a) Technical feasibility

Inadequate technical know-how

Locational disadvantageOutdated production process

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b) Economic viability

High cost of inputs

Break-even point too highUneconomic sixe of project

Underestimation of financial requirements

Unduly large investment in fixed assetsOver estimation of demand

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2. Implementation

cost overruns resulting from delays in

getting licenses and sanction etc,Inadequate mobilization of finance

3. Production

a)P

roduction mangementInappropriate product mix

Poor quality control

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Poor capacity utilisation

High cost of production

Poor inventory management Inadequate maintenance and rplacement

Lack of timely and adequate

modernization High wastage

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b) Labour management

Excessively high wage structure

Inefficient handling of labor problems Excessive manpower

Poor labour productivity

Poor labour relations Lack of trained skilled labour or technically

Competent pernonnel

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C) Marketing management

D) Financial management

E) Administrative ,management B External causes---

Infrastructural bottlenecks

Non availability of adequate finance Govt. policies

Market contraints, Extraneous factors