Sometimes, You Walk Away
Setting
Throughout Atlas’s existence we were always on the look for promising complementary companies; companies that could bring us related expertise – magnet positioning, magnetisation, etc. – or that could complete our range – we sold nearly all magnet materials, but there were still niche products where we were weak, or that we didn’t offer at all.
Challenge
At the same time our meteoric rise did not go unnoticed and companies sought us out to discuss cooperation, believing the whole to be more than the sum of its parts. One aspect, beside the normal issues involved in a cooperation/due-diligence, we had to be extra careful about: exuberance! Generally both parties were growing, had a positive take on the future and produced commensurate forecasts. But even when one party had recently run into troubles, these were often deemed simply transitional.
My Walkouts
Two cases stand out: the first, a technology leader, where, would we have been a Venture Capitalist playing the percentages, I am sure we would have gone ahead. Being a cash challenged trading company however, we had to step back, amounts involved were too high.
The second case was much more involving: a truly international niche player was facing bankruptcy and we were asked to step in. We were definitely interested and preliminary discussions and analyses were very positive. The target company was well larger than we were, but we knew the market inside-out, knew the people involved and had several customers lined-up already. There was one item on the balance sheet though that made me wary, a large pension liability. Apart from the scant funding I seemed to find, it was imperative that I fully investigated the meaning; different countries treat their pension liabilities differently and a major aspect was: could this be a ballooning liability? After a number of intensive discussions with auditors, lawyers and the like, I was absolutely sure this was a real risk, depending on where the economy would go, this aspect alone could sink a far larger company; I advised to walk away much to the chagrin of all of us.
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