In order to determine if a merger would make financial sense, companies should undertake a thorough analysis. This involves a discounted cashflow (DCF) as well as comparing and the trading equivalents of precedent transactions. It also involves https://www.mergerandacquisitiondata.com/how-do-lps-measure-performance-of-a-vc-fund calculating prospective synergies that can be realized once the deal is concluded. This is a difficult step that requires the knowledge of a financial analyst with experience in M&A modeling.
A dilution/accretion analysis is vital in determining the profitability. This analysis determines whether the merger will boost or decrease the earnings per share (EPS) post-transaction of the company that is acquiring. It starts by estimating the pro-forma earnings per share (EPS) of the buyer. A rise in earnings is regarded as a positive, while a decline could be viewed as negative.
The analysis should also consider the impact of a potential merger on the current structure of competition on the market and between the merging companies. This includes the possibility of anti-competitive effects, including offers for the newly merged company as well as an increased concentration of power on the market. There is some research in this area however more work is needed to determine quantitative studies that are suitable to evaluate the effects on competition of horizontal merges. The research needs to also investigate other barriers to coordination which are currently on the market, and how a merger could change this.