Companies must conduct an analysis prior to considering a merger to determine whether the deal is financially viable. This involves analyzing the past financial records of the businesses in question and forecasting future performance to determine the viability of the transaction. Mergers can significantly alter the operational structure of a business, its financial standing, and position in the market. In turn, they can also pose significant risks and also challenge integration, culture alignment, and customer retention.
Operational assessment
Business analysts conduct extensive analysis https://www.mergerandacquisitiondata.com/the-importance-of-conducting-vdr-analysis-for-a-potential-merger/ and research of a target’s operations to give buyers complete information about the strengths as well as its weaknesses and opportunities. They can identify areas of improvement and recommend ways to increase productivity and boost the efficiency.
Valuation analysis
The most important part of a M&A deal is determining the value the target company is worth to the acquiring firm. This is usually done by comparing trading comparables to prior transactions, and then performing a discounted cash flow analysis. It is crucial to use different valuation techniques when conducting M&A analysis, as each one offers a unique perspective on value.
Accretion/dilution analysis
An important tool to evaluate the impact of a M&A deal is an accretion/dilution model which is a calculation of how the acquisition will affect the pro forma earnings per share (EPS). A rise in EPS can be considered positive, whereas any decrease is considered dilutive. The accretion/dilution model is used to ensure that the amount paid for the goal is fair relative to its intrinsic value.