Acquisitions and mergers are frequently utilized by companies to expand their business, either through entering new markets or expanding their product offering. In the short term the deals can improve the company’s profitability and increase its growth. In the long term they must produce enough synergy to justify the purchase price to shareholders. It’s crucial that boards understand and evaluate M&A’s value.
M&A volume has been rising quickly for the past few years. The value of big transactions has fallen, and no so-called mega deals were completed during the first quarter. In fact, M&A activity has stalled since the middle of 2016.
This article examines four factors to consider when assessing worth of an M&A deal.
In the M&A business, it’s typical to see an acquirer pay more than the shares of the target company to gain access to new markets. In many instances however, the deal is not able to fulfill its promise. If this happens the company’s shareholders are left contemplating “What were they thinking?” Examples of these failures include Apple’s acquisition of iTunes HP’s acquisition the data analytics and enterprise search firm Autonomy and News Corp’s purchase MySpace, a social networking site. MySpace.
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