Mergers and acquisitions analysis

Cash[ edit ] Payment by cash. They receive stock in the company that is purchasing the smaller subsidiary. Financing options[ edit ] There are some elements to think about when choosing the form of payment.

Mergers and acquisitions analysis

The purpose is to delineate how and why a merger decision should be made.

Overview of the M&A Process

The course focuses on mergers and acquisitions in the context of private as well as publicly traded companies. Acquisitions of private companies account for the majority of transactions. To properly assess a potential merger we need to perform fundamental strategic and financial analysis, but remain aware of the idiosyncrasies that each potential merger contains.

A merger is a pivotal event for the companies involved. Both parties hope to benefit from the greater efficiency and competitive strength found in the combined company.

Strategies are altered and as a result product lines are broadened, strengthened, or refocused; management systems and personnel are changed; and levels and growth rates of profits are shifted.

In many instances, however, one side or the other or both lose substantial sums of money. Merger costs, including the direct costs of attorneys, accountants, investment bankers, and consultants, are substantial even though they are not a large percentage of the value of the merger.

There is also substantial cost in terms of time required by key employees to evaluate, complete, and implement the merger. Perhaps half of all mergers and acquisitions fail or do not achieve the desired results.

Many mergers fail because projected synergies do not materialize, often due to human obstacles.

Mergers and acquisitions analysis

If a merger is not well received by the employees of the new entity, then its chances of success are greatly diminished. It is critical that the parties involved in a merger become skilled in managing change.

Sometimes acquisitions fail for the acquiring company simply because it pays too much for the acquired company. An understanding of pre- and post-merger valuation analysis is required to avoid this pitfall. Because an entire company is acquired in a merger, determining the advisability of a potential merger requires a much broader analysis of the factors involved than most other areas of financial management.

In addition to the usual tax, legal, cash flow, and cash outlay considerations, competitive positions and strategies are important. The occurrence of a merger often raises concerns in antitrust circles. Devices such as the Herfindahl index can analyze the impact of a merger on a market and what, if any, action could prevent it.

Regulatory bodies such as the European Commission and the United States Department of Justice may investigate anti-trust cases for monopolies dangers, and have the power to block mergers. The remainder of this article will discuss several topics important to understanding the basic nature of and issues surrounding mergers and acquisitions.

These include methods of business combinations, motives for mergers and acquisitions, accounting for mergers, and before-and-after financial analysis.

It is useful to have an understanding of these different methods. Hereafter, the term acquisitions will be used to refer to any type of business combination. Acquisition An acquisition usually refers to the purchase of the assets of a company. However, in the remainder of this course, the term will be used in a much broader sense to indicate the purchase of shares, assets, or companies in the merger process.

Giddy | Introduction to Mergers & Acquisitions

Thus, the narrow, distinct meaning of the term will not be used. An acquisition can take the form of a purchase of the stock or other equity interests of the target entity, or the acquisition of all or a substantial amount of its assets.

Mergers and acquisitions analysis

Share purchases - in a share purchase the buyer buys the shares of the target company from the shareholders of the target company. The buyer will take on the company with all its assets and liabilities. Asset purchases - in an asset purchase the buyer buys the assets of the target company from the target company.

In simplest form this leaves the target company as an empty shell, and the cash it receives from the acquisition is then paid back to its shareholders by dividend or through liquidation. However, one of the advantages of an asset purchase for the buyer is that it can "cherry-pick" the assets that it wants and leave the assets - and liabilities - that it does not.In this module, we will concentrate on Merger Analysis, also known as Merger Consequences Analysis.

M&A Background A merger is the combining (or “pooling”) of two businesses, while an acquisition is the purchase of the ownership of one business by another. All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental/technical analysis.

Product Features. › Mergers Acquisitions M&A Process Overview of the M&A Process The mergers and acquisitions (M&A) process has many steps and can often take anywhere from 6 months to several years to complete. In this module, we will concentrate on Merger Analysis, also known as Merger Consequences Analysis.

Building an M&A Model

M&A Background A merger is the combining (or “pooling”) of two businesses, while an acquisition is the purchase of the ownership of . Mergers and Acquisitions: Conclusion In a merger or acquisition transaction, valuation is essentially the price that one party will pay for the other, or the value that one side will give up to.

Financial Statement Analysis in Mergers and Acquisitions Overview Financial statement analysis is fundamental to a corporate acquirer’s assessment of an acquisition or merger candidate. As part of its due diligence investigation, a corporate An analysis of the historical and forecast financial statements (where available) of a.

Mergers and Acquisitions: Valuation Matters