Chapter 2
Finding candidates
Introduction
If you buy a company you will pay the owners the present value of all the future profits that they expect from the business. You must assume that the current owners understand the profits their business will generate and that if you offer them any less they will not sell. Occasionally buyers do get an amazing deal but the vast majority do not. Frequently acquirers get their sums wrong and offer more than the present owners think the business is worth! It follows that before you buy, you must know how you can do more with the business than the present owners think they can.
In 1996, IBM bought Tivoli Systems for $743 million. At the time Tivoli had sales of slightly less than $50 million. Many ...
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