Finance

How to Choose a target firm for the acquisition?

In following way we can Choose a target firm for the acquisition:

If motive is ……

Target firm …..

Undervaluation

trades at a price below the estimated value

Diversification

is in a business which is different from the acquiring firm’s

business

 

Operating Synergy

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

Financial Synergy

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

Control

badly managed firm whose stock has underperformed the

Market.

Manager’s Interests

has characteristics that best meet CEO’s ego and power

Needs.

To know what are the steps involved in an Acquisition Valuation, you can read here. 

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