Mergers and Acquisitions (M&A))

Companies must conduct an analysis prior to contemplating a merger in order to determine if the merger is financially feasible. To assess the viability of a merger, companies must analyze the historical financial data and anticipate the future performance of the target companies. Mergers can drastically change a company’s financial position as well as its market position and operational structure. They also carry significant risks and pose challenges in the areas of integration, cultural alignment, and retention of customers.

Operational Assessment

Business analysts conduct extensive research and a thorough evaluation of the operation of a target in order to give prospective buyers an accurate picture of the strengths as well as weaknesses and opportunities. This allows them to pinpoint areas to improve and recommend actions that can increase productivity and increase the efficiency.

Valuation analysis

The most important aspect of the process of completing an M&A transaction is to determine the value of the target to the acquiring company. This is typically done by comparing comparable trading transactions, prior transactions, and then performing an analysis of cash flow that is discounted. When conducting M&A analyses it is crucial to employ different valuation methods because each offers a an individual perspective.

Analysis of the accretion/dilution

The accretion/dilution instrument is an important instrument to evaluate the effect of an M&A deal. It is a calculation that shows how the acquisition will affect the buyer’s proforma earnings per share (EPS). An increase in earnings per share (EPS) is considered accretive while a decrease is thought of as dilutive. The accretion/dilution strategy is used to ensure that the price paid for a goal is appropriate in relation to its intrinsic value.

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