Mergers & Acquisitions (M&A): Key Financial Aspects
"Despite the fact there are a myriad of items to analyze and sort through, from current business trends, how to best structure the transaction, tax implications and of course finally making decisions on direction, Barbara was always more than willing to discuss the options. Moreover, she waded through all the information while always keeping the personal goals of both the buyer and the seller in sight. "
Cape Canaveral Shrimp Co
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If you are currently considering a merger or acquisition, no matter how carefully you plan the transaction, you may still face major hurdles.
Below we will outline just a few key aspects that affect mergers and acquisitions. For a successful transaction you will need to master a great balancing act between managing the soft aspects of an M&A transaction (management team, intellectual property, company’s culture, internal and external communications, learning environment) and the more tangible ones (market research, due diligence, financial resources, synergies, integration plan).
Of course, both parties involved in a merger or acquisition transaction will have different perceptions on the value of the target company. Fortunately, there are many legitimate ways to valuate a company.
Unless there is a fire sale or some other extraordinary conditions, owners will not sell if they don’t benefit from selling. As a result, buyers will pay a premium for the company they are acquiring, regardless of the pre-merger valuation. For sellers the premium means their company’s future business revenues. For buyers the premium stands for the post merger growth they anticipate to achieve.
A merger and acquisition transaction can be executed by:
- Cash transaction
- A reasonable purchase price may be around 10% above the market price.
- Stock-for-stock transaction
- A transaction paid for by stock is not taxable
- Combination of both
Factors determining the sales price of the target company
- Company’s future performance
- Investment return
- Buyer and seller individual needs
- Timing within the economic environment, including the industry cycle
Mergers and acquisitions may not succeed for many reasons, including the difficulties to overcome practical challenges and loss of revenues when day-to-day operations are being neglected. While executing a merger and acquisition transaction can be a daunting task, it also can be a successful and highly rewarding one. A thorough due diligence process and meticulous planning will make a huge difference in the outcome.