Financial Analysis for a Potential Merger

When companies are in the process of evaluating potential mergers, a thorough analysis is necessary to determine whether the merger is financial sense. This involves a discounted cashflow (DCF) analysis, comparing and contrasting trading comparables, and previous transactions. It also involves calculating future synergies to be realized after the deal has been concluded. This is a complex step and requires the help of a highly skilled financial analyst who is familiar with M&A modeling.

In particular the case of accretion/dilution, it is crucial to determine the viability of a merger. This analysis determines whether the merger will increase or decrease earnings per share (EPS), post-transaction, of the acquiring firm. It starts by estimating the pro-forma earnings per share (EPS) of the acquirer. An increase is regarded as accretive, while an increase is considered dilutive.

The analysis should also consider the impact of a potential merger on the current structure of competition in the marketplace and between the merging companies. This includes the potential for anti-competitive effects, like offers made to a merged company or a greater power concentration on the market. While there is some research that has been conducted on this issue and the need for more research, it is necessary to determine the right quantitative analysis to evaluate the competitive impact of horizontal mergers. Furthermore, the study should look at what other obstacles to coordination are already in the market and how a merger could alter this.