Companies must conduct an analysis while considering a merger to determine if the deal is financially viable. This involves analyzing the past financial records of the companies in the proposed merger and predicting future performance to assess the feasibility of the deal. Mergers can significantly alter the financial standing of a company as well as its market position and operational structure. They can also bring serious risks and create challenges in terms of integration, culture alignment and customer retention.

Operational Evaluation

Business analysts carry out extensive analyses and studies of the operation of a potential company in order to provide acquirers a complete picture of its strengths, 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 element of a M&A deal is determining what the target company is worth to the acquiring firm. This is usually accomplished by comparing and contrast the trading equivalents and precedent transactions as well as executing an analysis of the cash flow discount. When conducting M&A analysis it is crucial to use different valuation techniques as each one offers a unique perspectives.

Analysis of accretion/dilution

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 impact a buyer’s pro form earnings per share (EPS). An increase in EPS is considered to be accretive, while a decrease is seen as dilutive. The accretion/dilution model is employed to ensure that the price paid for the target is a fair price in relation to the intrinsic value.

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