Mergers and acquisitions are usually employed by companies to expand their business, whether by entering new markets or expanding their product offerings. These deals can boost the profitability of a business and its growth in the short term. But in the long run the deal must create enough synergy value to justify the purchase price to shareholders. It is crucial that boards comprehend and assess the value of M&A.
M&A volume has been growing rapidly over the last few years. But the value of large deals has been declining as there were no mega-deals closing during the first quarter. In fact, M&A activity has stalled since the beginning of 2016.
This article outlines four aspects 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 the shares of the target company’s are worth in exchange for a chance to enter a new market or increase its dataroomcloud.org/value-of-mergers-and-acquisitions-in-simple-words competitive position. In many cases, the deal doesn’t fulfill its promise. When this happens the company’s shareholders are left thinking “What were they thinking?” Examples of these failures include Apple’s acquisition of iTunes HP’s acquisition of data analytics and enterprise search firm Autonomy and News Corp’s purchase the social media site MySpace.