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



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


badly managed firm whose stock has underperformed the


Manager’s Interests

has characteristics that best meet CEO’s ego and power


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

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