The Value of Mergers and Acquisitions

Companies often make mergers and acquisitions to expand by expanding their market or diversifying their product offerings. In the short run they can boost the profitability of a business and its growth. In the long run the deals must generate enough synergy to justify the price of acquisition for shareholders. It is vital that boards are aware and assess the value of M&A.

M&A volume has been increasing rapidly over the last few years. The value of large transactions has fallen, and no so-called mega deals were completed in Q1. M&A activity is stagnant since the middle of 2016.

This article outlines four elements to take into account when evaluating the worth of an M&A deal.

In the M&A world, it’s common for acquirers to pay more than the target company’s shares are worth in exchange for the chance to enter a different market or to improve its position on the market. In many cases however, the deal is not able to fulfill its promise. When this happens, the acquired company’s shareholders may wonder “What was the thought behind this acquisition?” Examples include Apple’s purchase of iTunes HP’s acquisition of enterprise data analytics and search firm Autonomy and News Corp’s purchase MySpace.

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