Financial Analysis for a Potential Merger

In order to determine if a merger would make financial sense, businesses must conduct a thorough analysis. This includes a discounted cashflow (DCF) comparison and contrasting trading comparables, and previous transactions. Additionally, it involves calculating future synergies that could be realized when the deal is concluded. This is a complex step and requires the assistance of a competent financial analyst who knows M&A modeling.

A dilution/accretion analysis is crucial in determining the profitability. This analysis determines whether or not the merger will increase or decrease the post-transaction earnings per share (EPS) of the acquiring company. It begins by estimating proforma net income in order to calculate the pro-forma earnings per Share (EPS). A rise in earnings is considered a positive while a decrease would be considered a negative.

The analysis should also consider the effect of a possible merger on the current analysis for a potential merger structure of competition in the market as well as between the merging companies. This includes the potential for anti-competitive effects, like deals made to the merged company or a higher power of the market. While there is some research that has been conducted on this issue but more research is needed to find quantitative analyses that are suitable to assess the competitive effects of horizontal mergers. The research should also examine other barriers to coordination that already exist on the market and how a merger could alter this.

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