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Wednesday, April 29, 2009

Retail therapy - history teaches us nothing

Yesterday I was talking to a friend who runs his own training business and we were comparing notes/moans about the current state of the economy. He then told me that he was in the process of doing due dilligence on a small company he was buying.

"What fun", I replied

"Yes", he said, "Retail therapy always works"

Then a penny dropped. What if the captains of industry were no different from the rest of us? When they are feeling low, instead of going out and buying a new handbag or a nice suit or a trolley load of chocolate, they go and buy a company?

Economists have long known that companies making acquisitions often overpay because the people making the acquisition want the kudos that goes with it.

Fred Goodwin's acquisition of ABN AMRO for the Royal Bank of Scotland last year or any of the other recent over leveraged mergers are just a larger equivalent of you taking your credit card and going mad in Selfridges.

When we will ever learn?

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