M&A deals are a great method to boost your business growth. They can increase the range of products you sell as well as allow you to access new markets, and create new revenue streams that might not have existed prior to. These benefits might not always be realized. There are many risks to be aware of when pursuing M&A.
One of the most important aspects of M&A is structuring the transaction. One way is to use the Transaction Assumptions tab in your model which will help you find a Purchase Price range or an exact proposed Purchase Price. Based on this information, you will be able to determine the amount of cash that will be required for financing the deal and trigger the appropriate fees for financing this portion of the transaction.
Once you have identified the purchase Price range or the exact Purchase Price for the transaction, it’s time to determine its value. This is a process of looking at the expected return of non-cash components, such as equity, cash debt, cash, and intangible assets. You can estimate the values of these components using your financial models or through back-of-the nap valuations such as industry multipliers.
You must maximize the return on these non-cash components because it is the only way to earn from your M&A investments. This was previously known by the term ‚economies of scale‘ but also includes cost synergies resulting from increased operational size, greater distribution capacity, access to a new market and risk diversification.