Buyers: Beware of Window-Dressing
“Buyer beware” has never been so important a mantra as in the years following the global financial crisis. Since then, companies and private equity groups awash with cheap money have scoured Asia looking for companies with compelling growth stories to invest in or acquire. With weaker corporate governance, and aware of the many potential suitors, the management of target companies sometimes engage in “window-dressing” to make their company appear more attractive or valuable than it really is.
“Window-dressing”, a term originally relating to the arrangement of a shop window to entice customers inside, becomes problematic when the picture of the business presented is misleading or false. Such window-dressing, particularly where financial statements have been manipulated can be very costly to a prospective acquirer.
Actual or perceived competition resulted in rushed deals, with lower due diligence thresholds relative to the investment risk. In unfamiliar markets and with the occasional unscrupulous vendor, some acquirers learned costly lessons. The key theme: buyers must seek to do more than just scratch the surface when evaluating a target company’s financial position.