Companies often use mergers and acquisitions in order to grow by expanding their market or diversifying their product offerings. These transactions can boost a company’s growth and profitability in the short term. But over the long haul these deals must produce enough synergy value to justify the purchase price to shareholders. This is why it’s crucial for boards to be able to comprehend and evaluate the value of M&A.
M&A volume has been rising quickly over the last few years. However, the value of these deals has been decreasing and no mega-deals completed in Q1. In fact, M&A activity has stalled since the beginning of 2016.
This article examines four factors to take into account when evaluating the worth of an M&A deal.
In the M&A world, it is normal for the acquirer to pay more than the shares of the target company are worth to get a chance to enter a different market or improve its position on the market. In many cases, however, the acquisition doesn’t live up to its promise. When this occurs, the acquired company’s shareholders wonder „What was their thinking?“ Examples include Apple’s purchase of iTunes HP’s acquisition of enterprise data analytics and search firm Autonomy and News Corp’s purchase MySpace.