M&A deals can be an effective tool to boost your company’s growth. They can help you expand your product line, penetrate new markets and generate revenue streams that you might not have had before. These benefits may not always occur. There are a myriad of potential pitfalls to be aware when considering M&A.
One of the most important aspects of M&A is structuring the transaction. You can use the Transaction Assumptions Tab in your model to find the range of Purchase Prices or a specific Purchase Price. Based on this information, you can determine the amount of cash that will be needed to finance the deal and then determine the appropriate fees to finance the transaction.
Once you’ve determined the purchase Price interval or an exact Purchase Price is the time to calculate the value of the transaction. This involves analysing the expected returns of non-cash parts, like equity, cash debt, cash, and intangible assets. You can determine the value of these elements using your financial models or through back-of-the-nap valuations such as industry multiples.
The reason why you want to maximize the return on these non-cash transaction elements is because it’s the only way to profit from your M&A investment. This was previously described as ‚economies-of-scale‘ but also includes cost synergies due to increased capacity of operations, increased distribution capacity, access to new markets, and risk diversification.