Companies need to conduct an analysis when looking at a merger to determine whether the deal is financially viable. To determine if the merger is feasible, companies must examine the financial records of the past and forecast future performance of the target companies. Mergers can fundamentally alter the financial standing of a company as well as its market position and the structure of its operations. They can also bring significant risks and pose challenges in the areas of integration, cultural alignment and customer retention.
Operational evaluation
Business analysts conduct extensive analysis and research of the operation of a target in order to provide buyers with an accurate picture of the strengths as well as its weaknesses and opportunities. This allows them to identify areas for improvement and recommend ways to improve productivity and boost efficiency.
Valuation analysis
The most crucial step in the process of completing an M&A transaction is to determine what the target is worth to the company that is buying it. This is typically done by comparing trading comparables, prior transactions, and then performing the discounted-cash flow analysis. It is important to use several valuation techniques when conducting M&A analysis, since each has its own perspective on value.
Analysis of accretion/dilution
The accretion/dilution method is an important tool for evaluating the impact of an M&A deal. It is a formula that reveals how the acquisition will impact the buyer’s pro forma earnings per share (EPS). An increase in earnings per share (EPS) is regarded as accretive and a decrease dilutive. The accretion/dilution approach is used to ensure the price paid for a goal is appropriate in relation to its intrinsic value.
