FREE online courses on Mergers & Acquisitions - Chapter 1 - Phase 3 - Investigate & Value the Target

 

The third phase of M & A is to perform a more detail analysis of the target company. You want to confirm that the Target Company is truly a good fit with the acquiring company.  This will require a more thorough review of operations, strategies, financials, and other aspects of the Target Company. This detail review is called "due diligence." Specifically, Phase I Due Diligence is initiated once a target company has been selected. The main objective is to identify various synergy values that can be realized through an M & A of the Target Company. Investment Bankers now enter into the M & A process to assist with this evaluation.

 

A key part of due diligence is the valuation of the target company. In the preliminary phases of M & A, we will calculate a total value for the combined company. We have already calculated a value for our company (acquiring company). We now want to calculate a value for the target as well as all other costs associated with the M & A. The calculation can be summarized as follows:

 

          Value of Our Company (Acquiring Company)                   $ 560

          Value of Target Company                                              176

          Value of Synergies per Phase I Due Diligence                       38

          Less M & A Costs (Legal, Investment Bank, etc.)                ( 9)

                   Total Value of Combined Company                      $ 765