Acquisitions and mergers are typically utilized by companies to expand their business, whether by entering new markets, or expanding their product range. In the short-term these deals can help increase the company’s profitability and increase its growth. But over the long haul the deal must create enough synergy value to justify the price of acquisition to shareholders. It’s crucial that boards understand and assess the value of M&A.
For the last few years, M&A volumes have been increasing rapidly. However, the value of these deals has been declining, with no so-called mega-deals closing in Q1. In fact, M&A activity has stalled since the middle of 2016.
This article discusses four factors to consider when assessing value of an M&A deal.
In the M&A world, it’s normal for the acquirer to pay more than what the shares of the target company’s are worth in exchange for the chance to enter a new market or increase its competitive position. In many instances, however, the acquisition is not able to fulfill its promises. When this occurs the company’s shareholders are left thinking “What were they thinking?” Examples of these failures include Apple’s acquisition of iTunes HP’s purchase of enterprise search and data analytics firm Autonomy, and News Corp’s purchase of MySpace, a social networking site. MySpace.