There’s one thing that can be the kiss of death for many acquisitions when this happens it can be extremely hard to overcome. What might that be?

Overpaying.

Overpaying is like putting a backpack with a heavy weight on your back at the start of a marathon. Sure you can continue, but it may be very difficult to overcome and you certainly can’t perform as well as you might do otherwise.

Overpaying can be harmful in many different aspects:

1. When you overpay it costs more and that can require more bank debt to make the transaction happen. More bank debt means more additional expense that is needed in order to keep going each month. That becomes an additional expense you wouldn’t have otherwise and continually diverts some resources away.

2. It usually means further dilution in your equity. More equity has to be raised or there’s less equity left aside for other purposes.

3. You’ve got a higher allocation to various assets depending upon how the acquisition was structured. It’s a further burden on your operating numbers.

4. Higher operating risks and financial risks. There’s enough risk as it is with acquisition and part of the challenge of managing a company is to balance your operational risks with financial risks and not take on too much of one or the other. The difficulty is an acquisition by itself already has high operating risk. That operating risk is increased by having higher operating costs due to more inflated assets. The financial risk is also increased by having to bring in more capital to complete the transaction. It’s the worst of both worlds.

5. Less cushion. By paying more for an acquisition, you have less room for error. Things will go wrong with an acquisition. Now, that’s okay if you move forward and adjust but by overpaying you’ve got less opportunities to adjust, you’ve got less money to work with and you’ve got less room in operating performance before you run into serious difficulty.

Make sure your acquisition sees the light of day. Don’t start off with a big handicap right from the beginning. If it looks like it’s going to be too much to pay, walk away. There can be other opportunities.