If you’re wondering what the key elements of a successful merger or sale are, we’ve outlined them for you here:
Good businesses do not stagnate, they grow and expand the breadth of the good and services they offer. Business owners recognize this fact and opt, every once in a while, to engage in corporate restructuring to enable the survival or rejuvenation of their organizations. They may choose to merge or acquire another business, or simply sell their companies to others. With a merger or sale, several key factors play a factor in whether the transaction is classified as successful or not. Read on to find out which five elements are attributable to successful mergers and sales.
Satisfactory Transfer of Interest
Each party in a merger or sale expects to gain from the agreement. A seller expects to receive cash or an exchange of shares for his interest while the buyer looks forward to profiting from the investment in future. A successful merger or sale is one which reconciles the expectations of all the parties involved as best and realistically as possible. With each company or individual party to the agreement, there is less room for dissatisfaction and filing for future claims.
Business Stability
Before and when a company is undergoing a merger or sale, its shares and market value fluctuate constantly. There is a less steady cash flow. Perhaps the most noticeable effect on such a firm is the highs and lows of its dues. When such an enterprise undergoes a successful transfer of ownership, its numbers become more stable. The balance sheets may not reflect profit for a long period after the transfer is complete but the firm’s market price and dues should be steady, with improvement in performance being noted after some time.
Return on Investment
In a merger, a company acquired the business of another firm. A sale involves a complete transfer of ownership to another party. For a merger or sale to be considered successful, the predicted future earnings of the company making the sale should outweigh the cost (capital used in buying another enterprise) that firm will incur. When an appraiser determines that the value outweighs the cost, the merger or sale proves beneficial to the acquiring company.
Higher Market Price
The value of an acquired company after purchase, and the earnings of the components of a merger after the merging process should be higher compared to before the transfer of interest for the procedures to be considered effective. An improvement in share market price is indicated by the Earnings per Share (EPS) and the price-earnings ratio (P/E) of the firm. Companies can also engage professional valuers to give them valuations and detect changes in market price.
Increased Profit
A fruitful merger or sale is characterized by the successful integration of old and new business practices, cultures, workforce, principles among others. When that happens, the firm produces quality products and services and build reputations. Successfully merged or sold companies consequently and ultimately make a profit.
Mergers and sales are delicate agreements which rely on people’s values, emotions, perspectives, and beliefs. That is the reason effective business merging or selling usually takes time.
Mathieu Paul
Director – Business Improvement
P: +618 6315 2755
E: enquiries@wabusinessvaluations.com.au
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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