In order to determine if a merger would make financial sense, businesses must conduct a thorough analysis. This involves a discounted cashflow (DCF) as well as comparing and contrasting trading comparables, and precedent transactions. It also involves calculating future synergies to be realized when the deal is completed. This is a difficult step and requires the help of a competent financial analyst who understands M&A modeling.
Particularly the case of accretion/dilution, it is essential to determine the profitability of a merger. This analysis determines if the merger will increase or decrease the earnings per share (EPS), post-transaction, of the acquirer. The process begins by estimating the pro-forma https://www.mergerandacquisitiondata.com/the-importance-of-conducting-vdr-analysis-for-a-potential-merger/ net income to arrive at the pro-forma Earnings per Share (EPS). A rise is considered to be positive, whereas any decrease is considered dilutive.
The analysis should also consider the impact of a potential merger on the current nature of competition in the market and between the merging companies. This includes the possibility of adverse effects to competition, such as deals made to the merged company or a heightened concentration in power on the market. There is some research in this field but more work is required to identify quantitative analyses that are suitable to evaluate the effects on competition of horizontal mergers. Moreover, the research should investigate what other barriers to coordination currently exist in the market and how a merger would alter this.