In following way we can Choose a target firm for the acquisition:
If motive is ……
Target firm …..
trades at a price below the estimated value
is in a business which is different from the acquiring firm’s
have the characteristics that create the operating synergy
Cost Savings: in same business to create economies of scale.
Higher growth: should have potential for higher growth
Tax Savings: provides a tax benefit to acquirer
Debt Capacity: is unable to borrow money or pay high rates
Cash slack: has great projects/ no funds
badly managed firm whose stock has underperformed the
has characteristics that best meet CEO’s ego and power