How many businesses have you seen that have imploded due to too much debt? Many business owners want to grow and grow and keep buying businesses but why, power, greed? Why do you need to get so large? In order to expand you may now have to leave business what made you successful and get outside of your core business. Twenty years ago, many public companies started to accumulate businesses which were not synergistic, they had no benefits for common ownership. Why were people setting up holding companies to acquire large public companies? Recently, Canwest a Canadian media company went into creditor reorganization because they had too much debt. They wanted to be a global media company – but did that make sense? Where there synergies from being global? What was the synergy between Canada, New Zealand, Australia and Turkey?
Too many entrepreneurs have a vision but the vision may have more to do with egos than with business sense. Many years ago Tyco, a US public companies was on a buying spree trying to buy as many companies as possible but they did not do much to try to keep the business customers of many of the smaller companies that they acquired. If you bought a company, isn’t it cheaper to make sure that you are able to integrate it into your current business and keep the customers of that business than acquire a new customer? That is cheaper than buying another company. In order to entice owners to sell, they were buying businesses at huge premiums that the owners would never receive from anyone else. Tyco was able to tap into the public markets and funding was not an issue, as a result, making sure that the purchase price was a good value may not have been an issue.
If you are a public company, you are using someone else’s money and you are risking other people’s money. If you are a business owner, it is your money who are you spending. if you make a bad decision, it is out of your pocket. Do you keep growing for the sake of growing, is there a vision or business plan of why you are continuing to grow? Can you digest and handle the growth? Is there a synergy between each of your divisions therefore the growth is a logical progression in the business cycle or are you buying and expanding to say that you are a large company that can afford to buy anyone you want?
As companies become larger and larger, they continue to grow but do they grow in the right direction and for the right reasons? On the other hand, the owners may have a plan and you are only seeing parts of the plan and when they finish their acquisitions, you may realize that it was well thought out. It is easy on the outside to look in and criticize, you need to understand the management decisions because it could take years for the real picture and growth strategy to be evident to the public. Remember, companies do not always want to publicize what they are doing because it could cost them more money if everyone knew which companies they were trying to buyand corner the market segment.