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Companies must conduct an analysis while evaluating a merger to determine if the deal is financially feasible. This involves looking at the historical financials of the target companies and predicting the future performance of the business to determine whether the deal is viable. Mergers can drastically alter the structure of an organization’s operations, financial standing, and even its market position. They also carry serious risks and create challenges in the areas of integration, cultural alignment, and retention of customers.

Operational Evaluation

Business analysts conduct extensive studies and assessments of the operation of a potential company to provide prospective buyers with a complete picture of its strengths, weaknesses and opportunities. They can identify areas for improvement and suggest actions that can increase efficiency and productivity.

Analysis of valuation

The most important aspect of the course of an M&A deal is determining what the value of the target to the acquirer. This is usually accomplished by comparing trading comparables, previous transactions and an analysis of cash flow that is discounted. It is essential to employ different valuation techniques when conducting M&A analysis, since each has its own perspective on value.

Analysis of the accretion/dilution

A crucial tool for assessing the impact of a M&A deal is an accretion/dilution analysis model, which calculates how the acquisition will affect a buyer’s pro for-pro forma earnings per share (EPS). An increase in EPS can be considered an accretive event, while any decrease is considered dilutive. The accretion/dilution strategy is used to ensure the price paid for a goal is reasonable in relation to its intrinsic value.

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