Companies must conduct an analysis prior to looking at a merger to determine if the proposed deal is financially viable. This involves examining the historical financial records of the businesses in question and predicting the future performance of the business to assess the viability of the merger. Mergers can significantly change a company’s financial position in terms of market position, financial standing, and the structure of its operations. They also carry serious risks and create challenges in terms of integration, culture alignment and customer retention.
Operational Evaluation
Business analysts conduct extensive research and analysis of the operations of a target company to provide buyers with complete information about the strengths and weaknesses as well as opportunities. This helps them identify areas of improvement and suggest ways to increase efficiency and productivity.
Valuation analysis
The most important aspect of the course of an M&A transaction is to determine the value of the target to the acquiring company. This is typically accomplished through comparing trading similars, prior transactions, and then performing a discounted cash flow analysis. It is important to use different valuation techniques when conducting M&A analysis, as each provides a different perspective on value.
Analysis of accretion/dilution
A key tool for evaluating the impact of an M&A deal is an accretion/dilution model, which calculates how the acquisition will impact the pro nominal earnings per share (EPS). A rise in earnings per share (EPS) is regarded as accretive while a decrease is deemed dilutive. The accretion/dilution model is used to ensure that the price given to the target analysis for a potential merger is fair relative to its intrinsic value.