Companies must conduct an analysis while evaluating a merger to determine if the merger is financially viable. To determine whether the deal is viable in evaluating the feasibility of a merger, businesses must look at previous financial data and then predict the future performance of the targeted companies. Mergers can dramatically change a company’s financial position in terms of market position, financial standing, and the structure of its operations. As a result, they can also introduce significant risk and pose a challenge to integration, cultural alignment, and retention of customers.

Operational evaluation

Business analysts conduct extensive analysis and research of the operations of a target company to provide buyers with complete information about the strengths, weaknesses, and opportunities. This helps them identify areas to improve and suggest ways to improve productivity and boost efficiency.

Analysis of valuation

The most important element of a M&A deal is determining what the target business is worth to the acquirer. This is typically accomplished by comparing trading comparables, precedent transactions and performing an analysis of cash flow that is discounted. It is important to use several valuation techniques when conducting M&A analysis, as each offers a unique perspective on the value.

Analysis of Accretion/Dilution

An important tool to evaluate the impact of a M&A deal is an accretion/dilution model which calculates how the acquisition will impact the pro form earnings per share (EPS). A rise in EPS is viewed as positive, whereas the decrease in EPS is viewed as dilutive. The accretion/dilution models are used to ensure that the consideration given to the target is fair in relation to its intrinsic value.

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