Companies often make mergers and acquisitions as a way to grow by expanding their market or diversifying their product offerings. These deals can help boost the profitability of a business and its growth in the short term. In the long term the deals must produce enough synergy to justify the purchase price to shareholders. This is why it’s essential for boards to understand and assess the benefits of M&A.
In the past few years, M&A volumes have been increasing quickly. The value of big transactions has decreased, and no so-called mega deals were signed in the first quarter of this year. M&A activity has been stagnant since middle of 2016.
This article outlines four aspects to take into consideration when assessing the value of an M&A deal.
In the M&A business, it’s typical for an acquirer pay more than the share price of the company it is acquiring to gain access to new markets. But in many cases, the deal does not deliver on its promised value. If this happens, the newly acquired company’s shareholders are left wondering « 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 acquisition of MySpace.