- Acquisition programs that focus on buying small
privatebusinessesforconsolidationshavehadmore
successthanacquisitionprogramsthatconcentrateon
acquiring publicly tradedfirms. There aretwokey
advantagestobuyingprivatebusinesses.Thefirstis
that private businesses operate under far tighter
capital constraints and synergies (from using cash
slack)arelikelytobemuchgreaterthanforpublicly
traded targets. The second is that the acquirer no
longerhastobeginwithamarketprice,whichmay
already reflect the value of synergy and add a
premiumtoit.Thevalueofaprivatecompanyhasto
beestimatedandislesslikelytoincludethismarket
bias.
In conclusion, synergy is difficult to deliver but it is not
impossibletocreate.Firmsthataredisciplinedwhenmaking
acquisitions and stay focused are better able to deliver
promised synergy benefits.