Recently, I was called upon to render my opinion to a company analyzing various national growth opportunities. With over 30 years of business experience, 22 of which was in running my own national company, I found the discussions as they reviewed each opportunity eerily familiar.

On the table was an opportunity to acquire a company in a allied but not the same field located on the opposite side of the country from the company’s headquarters. I’m not an M & A specialist nor investment banker, but I am a good-old-fashioned business woman who doesn’t go in for smoke and mirror maneuvers for bolstering balance sheets. I assess opportunities for the real added value they bring to a company in light of its resources and abilities. I ask common sense questions before getting into the math:

“What is to be gained by such an acquisition?”
“What are the risks?”
“What resources will it take for the acquisition and for running the day-to-day operation?”

The answers would tell me whether the acquisition was a gamble or a calculated risk. Just to be clear, the definition* of the verb “gamble” is “to bet on an uncertain outcome.” The definition* of the verb “calculated risk” is “to take a chance after careful estimation of a probable outcome.”

I am a calculated risk taker. I do my homework and I start with my three questions. As I listened to the group before me discuss the opportunity, I saw that they had not done their homework. Buying a company in an allied field certainly makes sense if it enhances the value of your operation and if there are enough synergies that can make for a relatively smooth transition. Upon closer evaluation, it appeared that just because the acquisition was in an allied field, did not mean that it was going to enhance my client’s business. It would have required a new learning curve for current management and the transition would have cost a large loss of customers belonging to the company being acquired. Furthermore, when you run a national operation, especially where brick and mortar is involved, a proper management plan which includes boots-on-the-ground HQ management visiting the remote location, has to be a must. In addition, when you branch out, it is critical to plan for and to have the resources at the ready for unanticipated contingencies. Upon review, the added value of the acquisition was far outweighed by the challenges.

For 22 years I was in the business of selling a niche specialty in historical collectibles, historical documents. I had nine stores nationwide and a direct division. It was quite a managerial chore to run the stores. My SVP and I were road warriors. Having a boots-on-the-ground management presence makes a critical difference in running a national company. Many a time my company was presented with acquisition opportunities from allied fields--stamps, coins, art to name a few. We learned to look very carefully at considering opportunities for acquisitions in “allied” fields. The bottom line lies in asking the questions and assessing if the acquisition enhances your core business and offers sustainable opportunity to grow your future.

Had my client made their decision for acquisition without looking more deeply into the questions, the decision would have been a gamble. Having moved forward on the acquisition in spite of what they now know not only would have been a gamble but reckless. Had the answers showed that the gains in doing the deal far outweighed the losses, the decision to go forward would have been one of taking a calculated risk in growing the business.

Sure things are rare in business. Growth strategies are riddled with risk. Doing your homework makes a difference in mitigating the outcome.

*From Dictionary.com and “Webster’s Seventh New Collegiate Dictionary”