Companies must conduct an analysis prior to evaluating a merger to determine if the deal is financially feasible. This involves examining the historical financial records of the companies in the proposed merger and predicting future performance to assess the viability of the merger. Mergers can fundamentally alter a company’s financial standing and market position as well as operational structure. They can also pose significant risks and challenge integration, cultural alignment, and customer retention.
Operational assessment
Business analysts conduct extensive research and analysis of the operations of a target company to provide acquirers with complete details of the strengths as well as its weaknesses and opportunities. This allows them to pinpoint areas to improve and recommend ways to increase efficiency and productivity.
Analysis of valuation
The most important step in a M&A transaction is determining what the value of the target to the company that is buying it. This is usually done by comparing and contrast similar transactions in the market and precedent transactions, as well as performing an analysis of cash flow discounted. When conducting M&A analysis it is essential to use a variety of valuation methods since each provides a unique perspective.
Analysis of Accretion/Dilution
The accretion/dilution tool is an essential tool to assess the impact of an M&A deal. It is a method that shows how the acquisition will affect the buyer’s pro-forma earnings per share (EPS). A rise in EPS is considered to be positive, whereas the decrease in EPS is viewed as dilutive. The accretion/dilution approach is used to ensure the price paid for a target is fair in relation to the intrinsic value.
