M&A deals are a great method to boost your business growth. They can increase the number of products and services you offer and also allow you to expand into new markets, and help create revenue streams that may not have existed previously. However the benefits of M&A do not always occur however, and there are numerous risks to be aware of to avoid when looking into M&A opportunities.
One of the major aspects of M&A is determining how to structure the transaction. You can utilize the Transaction Assumptions Tab in your model to determine a range of purchase prices or a specific Purchase Price. This information will help you determine the amount of cash needed to finance the transaction, as well as the costs related to financing this portion.
Once you’ve determined the Purchase Price range or the exact Purchase Price for the transaction, it is time to determine its value. This is a process of analyzing the expected return of the non-cash parts, like cash, equity debt, cash, and intangible assets. You can estimate these values through your financial models or using back-of-the-nap valuations, like multiples for industry.
The reason you’re trying to maximize the return on these non-cash transaction components is because it’s the only way to earn money from your M&A investment. This was previously described as ‘economies-of-scale’ but also includes cost synergies as a result of increased operational size, greater distribution capacity, access to a new markets, and risk diversification.
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