When companies are involved in the process of evaluating mergers and acquisitions, a thorough analysis is necessary to determine whether the merger is in financial sense. This includes a discounted cashflow (DCF), comparing and contrast trading comparables, as well as precedent transactions. Additionally, it involves calculating future synergies to be realized when the deal has been completed. This is a challenging step and requires the services of a competent financial analyst who understands M&A modeling.
A dilution/accretion analysis is vital in determining the profitability. This analysis determines whether or not the deal will increase or reduce the post-transaction earnings per share (EPS) of the company acquiring. The process begins by estimating the pro-forma net income to arrive at the pro-forma earnings per Share (EPS). A rise in earnings is considered a positive, whereas a decrease would be considered a negative.
The analysis should also take into account the effects of the merger on the nature of the competition between merging companies and the market. This could result in anti-competitive effects, including offers for the merging company and heightened concentration of power on the market. While there is some research on this topic, more work is needed to identify quantitative analyses suitable for assessing the impact on competition of horizontal mergers. The research should also look at other obstacles to coordination that are already present on the market and how a merger could change this.
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