There is a real truth about buying a business in an industry in which you have not had previous experience. The fact is that no matter how much due diligence, research and fact finding you will attempt – the fact of the matter is the only person that really understands the business in the context of the industry is the seller. It is knowledge built upon years of experience – it’s a keen sense of the competition, the company’s relative strength and weaknesses and changes in the industry at large. The seller has a unique vantage point as the 5 / 10 / 20 or 30 years of experience have in some respects happened in slow motion – a view from a high vantage point. He or she knows where all the skeletons are buried.
You don’t have that luxury. You are in the throes of spending quite a sum of money and a bit of borrowed money. You better be right because changes affecting your acquired business will Not happen in slow motion. I know —- we acquired a company in which revenue was severely diminished due to contraction of the overall number of industry players. In our case we found that the largest acquirer in the market was much closer to our nearest competitor — generating revenue for our competitor and leaving us gasping for air. Was the seller aware of the effect that this was having on our industry?
More on this next time and why we missed it.