Five red flags for acquisitions

We’re in a market that is ripe for company acquisitions - interest rates are low, profit growth is soft and equity valuations are mostly high. Yet, while many of these acquisitions will be greeted with hype and some with acclaim, in my experience the majority will end in tears. These are the five flags I look out for. 1) Blinded by EPS (earnings-per-share) accretion. CEOs often pursue EPS-accretive acquisitions because of financial incentives – their base pay increases as the company size does. 2) Paying too much for goodwill. 3) Diversifying for the wrong reasons. There are a lot of good reasons to make an acquisition but diversification is seldom one of them. 4) Acquisition accounting to bolster earnings and profit. Some companies use acquisition accounting to bolster earnings in the year after the acquisition. 5) Due diligence stretched by volume of acquisitions. If a company is making one acquisition a month or a company-transforming acquisition every year, then the likelihood of a material slip up is very high. Read more to see what makes a successful acquisition: (VIEW LINK)