When considering a potential merger companies must conduct analysis to determine if the deal makes financial sense. This involves analyzing the past financial records of the companies in the proposed merger and predicting the future performance of the business to determine the viability of the transaction. Mergers can fundamentally alter a company’s financial standing and market position as well as the structure of its operations. They could also bring significant risk and challenge integration, cultural alignment, and retention of customers.

Operational Assessment

Business analysts conduct extensive research and evaluations of the operations of a target company in order to provide acquirers a complete picture of its strengths, weaknesses and opportunities. They can identify areas for improvement and recommend ways to improve efficiency and productivity.

Analysis of valuation

The most important element of an M&A deal is determining what the target business is worth to the acquiring firm. This is usually analysis for a potential merger accomplished by comparing and contrast similar transactions in the market and precedent transactions, as well as performing an analysis of cash flow that is discounted. It is important to use various valuation methods when conducting M&A analysis, as each provides a different perspective on the value.

Analyzing accretion/dilution

A key tool for evaluating the impact of an M&A deal is an accretion/dilution modeling, which is a calculation of how the acquisition will affect a buyer’s pro for-pro forma earnings per share (EPS). An increase in earnings per share (EPS) is considered accretive while a decrease is thought of as dilutive. The accretion/dilution technique is employed to ensure the price paid for a target is reasonable in relation to its intrinsic value.