Getting savvy

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are the chief candidates for acquisitions. A big company has the ability to develop or acquire a gamut of varying services and products. However, if it can buy a company at a reasonable price that has a unique niche in a particular industry, either in terms of a product or service, it would most likely take a plunge and acquire it. Says Krishna Kumar, fund manager, BNP Paribas Mutual Fund, "Companies, which have promoters holding less than 25-30% would be on the acquisition radar, provided the business of the company is good."

The companies, which are circumspective, wait until the smaller company has a niche carved out. And in terms of both money and time, it is often cheaper for larger companies to acquire a given product or a service than to build it out from scratch. This allows them to avoid much of the risk associated with a startup procedure.

a) Reach, strength and history

Companies, which have a smaller base often don't have the ability to market their items nationally, much less internationally. Larger firms with deeper pockets have this ability. Therefore, look for not only a company with a viable product line, but one that, with the proper financing, could have the potential for large-scale growth. The potential acquisition target must have a clean operating history, consistent revenue streams, and steady businesses. Also, you must note whether the potential target company has been proactive in telling its story to the investment community? Has it transacted with striking regularity?

Almost every company at some point in time will be engaged in some sort of litigation. However, a potential acquisition target would not be saddled down with lawsuits. Also, these companies usually develop economies of scale. In other words, its revenues grow, but its overhead - its rent, interest payments, and maybe even its labour costs - stays the same, or increases at a much lower rate than revenue. Bigger players aim at such companies that have their cost structure in line, and that have a viable plan to grow revenue.

b) Cash and cashing in on