Evaluate an Acquisition


M&A is very sexy. So it is easy to get carried away, but the harsh fact is that only 1 acquisition in 4 creates value for the acquirer.

Make sure you are in the successful 25%, by asking yourself these questions:

I Executive Summary

[Summarise your acquisition recommendation and your key rationale for it]

  • Description of the opportunity
  • The strategic rationale for buying this company
  • The expected value creation
  • Details on implementation

II Is this acquisition the best way to realise our strategy?

  • Is acquisition a better way to deliver the strategy than alternatives?
    • Can we deliver it organically?
    • If organically won’t work, are less risky alternatives (e.g. alliance, JV, minority stake) possible?
  • Does this company fit our strategy?
  • Is this company a better fit than other potential acquisitions? Why?

III Will this acquisition create value?

  • What is our “walk-away” price?
    • What is the stand-alone value of the target company?
    • What is the value of synergies?
      • What is our Value Hypothesis?
      • Should synergies be probability weighted? (revenue synergies are usually more risky than cost synergies)
      • How long and how much investment will they take to realise?
      • What dis-synergies and deal costs exist?
    • What are our key financial assumptions? [Tool: Sensitivity Analysis]
    • How does this price compare to Comparable companies and deals? [Tool: Comparable Multiples analysis]
  • Are we likely to be able to buy a a price below our “walk-away”?
    • Why will the owners want to sell?
    • Are we the natural owners?
    • Why should we approach now, or does our negotiation position improve if we wait?

IV Will we be able to execute the deal?

  • Can we close the deal successfully?
    • Can we raise financing?
    • Can we get regulatory clearance? (Anti-monopoly, national interest)
    • What should we look out for in Due Diligence?
    • What deal structure should we use? (Legal and tax considerations)
  • Can we manage the risks?
    • What are the major risks?
    • What action can we take to mitigate them?
  • Can we integrate the acquisition successfully?
    • How do we preserve value?
      • How do we preserve the “crown jewels”?
      • How do we avoid a “culture clash”?
      • What is the communications plan?
    • What will be our integration plan?
      • Who will be the integration team?
      • What are the priority integration projects?
      • What will be the post-integration organisation chart?
      • What will be the approach, resources and key decisions?
      • How are we going to monitor integration?


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