News of some merger or the other pops out in the newspaper almost every day
. Any company goes for a merger in order to gain synergies out of the operations of the business or to go for a diversification of the product portfolio. From a technical point of view, it is very important to analysis the merger and to look out for the possible benefits out of this deal.
The merger analysis process is very complex and requires extensive knowledge of both the companies. This process includes the following steps: Analysis of the terms and conditions of the offer, financial modeling, Sensitivity Analysis and finally deciding on the deal.
Terms and conditions of the offer refers to the purchase deal offer which may be all cash, shares or both cash and shares. The financial modeling includes the identification of various assumptions for projections of revenue, cost, market-share, and growth. This is the stage that helps to identify the synergies that might arise out of this transaction, be it an operational synergy or a comprehensive synergy.
Next is the sensitivity analysis of the projections. This includes a what-if analysis on all the variables taken into consideration for the projections done for the valuation exercise in the previous stage. All these are the basic stages in the process of analyzing a merger deal. This helps in having an idea of the possible benefits of the merger deal and accordingly the deal is carried out.