The Value of Mergers and Acquisitions

Companies often use mergers and acquisitions to expand by entering new markets or diversifying their product offerings. In the short-term they can boost the profitability of a company and also boost its growth. In the long term these deals should generate enough synergy to justify the cost to shareholders. This is why it’s vital for boards to understand and evaluate the worth of M&A.

For the last few years, M&A volumes have been growing quickly. However, the value of big deals has been decreasing, with no so-called mega-deals in the first quarter of 2017. M&A activity is actually at a standstill since the middle of 2016.

This article reviews the four elements that must be considered when evaluating the value an M&A transaction.

In the M&A world, it’s common for acquirers to pay more than the shares of the target company’s are worth to get a opportunity to enter a new market or improve its position on the market. In many instances however, the deal does not deliver on its promises. When this happens, the newly acquired company’s shareholders may 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 of MySpace.

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