Action Plan for Acquisitions

"I feel this is like seeking a needle in a haystack", says John Smith, CEO of Language Arts, Inc, a medium sized translation firm. A few days earlier, John's major customer, a Fortune 500 manufacturing firm, had explained that the only way they could continue to work together would be that John's company develops globally. The Fortune 500 Corporation had decided to systematically seek global service providers in order to negotiate lower fees and to streamline its contractor management. John knew he had to start as soon as possible offering services to his customer's rapidly developing Chinese subsidiaries. Otherwise he would most likely lose his main client in favor of global competitors. John had a very short timeframe to launch this initiative, because Language Arts' main client was preparing to issue a new global RFQ (Request for Quotes) for translation services. If John developed subsidiaries overseas, he could keep his client and add millions of dollars per year to Language Arts' revenues.

John spoke about this issue with his banker, who advised him to rapidly take minority stakes in small foreign-based translation firms and officially make them his firm's offices in those countries. The bank committed to fund the initiative, and John decided to use up to one million dollars. Obviously John couldn't put this money into random foreign translation firms. The selected firms would have to be based in key countries, be viable, be reliable, have growth potential, have expertise and current customers in the same industries as John's firm, be willing to open their capital, be affordable, and be willing to share some management control with John.

John asks you to help find firms that match these criteria. You start preparing an action plan for this project.

1. How do you proceed? That is, which methodology would be "better" in determining which firms would be viable for acquisition by John's company?

2. What expertise do these companies' need in order to be "viable" according to the advice that John received?

3. Do you agree with John's banker's advice? Do you agree with John's decision to allocate $1 million US to the venture? What would your advice to John Smith be if you do NOT agree with his banker's advice?