The Value of Mergers and Acquisitions

Companies typically use mergers and acquisitions as a way to grow by entering new markets or diversifying their product offerings. In the short term they can boost the profitability of a business and its growth. In the long term these deals should bring about enough synergy that it is worth the purchase price to shareholders. It is vital that boards are aware and assess the value of M&A.

In the past few years, M&A volumes have been increasing rapidly. But the value of large deals has been falling as there were no mega-deals in the first quarter of this year. M&A activity has been stagnant since middle 2016.

This article examines the four aspects that need to be considered when assessing the value of an M&A transaction.

In the M&A world, it is typical for the acquirer to pay more than the shares of the target company’s are worth to get a chance to enter a new market or to improve its position in the market. In many cases, however, the acquisition is not able to fulfill its promises. If this happens, the acquired company’s shareholders ask “What were they thinking?” Examples include Apple’s purchase iTunes, HP’s acquisition of enterprise data analytics and search firm Autonomy and News Corp’s purchase MySpace.

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