Stick to the buy laws

It's blindingly obvious, but when you're looking to buy a company, make sure it's the right one

One of the most vital and simplest points to think about when acquiring a company is whether or not the company you are buying is the right one. A blindingly obvious point you might think, but it is surprising how many firms get it wrong.

When huge corporates such as Cisco or Microsoft buy up other companies, the question of whether the purchased firm is financially unstable, or has a different corporate culture, is not hugely relevant. In most cases the smaller company will simply be swallowed up by the behemoth. But for organisations that are not making $1.4bn profit a quarter like Cisco, any acquisition is likely to have a huge impact.

Matrix Communications, which finalised a deal to acquire equIP this week, is an exceptionally aggressive firm, having bought five companies in less than 12 months. This could have been a risky strategy, but for Matrix it seems to have paid off. The firm reported operating profit of £1.2m for last year.

The reason why this strategy has worked is that Matrix has concentrated on firms that were extremely stable. Norwood Adam, which Matrix bought last year, and equIP were both distributors with a particular specialisation. Each had a good stable of vendors, and operated profitably. The recent acquisition of equIP will not only give Matrix an additional specialisation and focus on security, fitting in neatly with its networking focus, but will bring some new vendors into its fold.

Until now at least Matrix has bought solid firms that fit into its strategy, but the danger could be that it will continue to acquire and lose its focus. Lessons should be learned from Logcom, a reseller which last year began buying up companies at a rate of knots. It attempted five buy-outs in the space of two months, only to fall into financial difficulties, and within weeks had ceased trading.

Acquisitive companies need to make sure when adopting such an aggressive strategy that a limit has been set, and that any purchases are made with a clearly defined focus.