What is a Mergers and Acquisitions Valuation?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 October 2019
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A mergers and acquisitions valuation is a process used by many businesses before launching an attempt to acquire other companies. The purpose of this type of valuation is to compare the benefits of moving forward and actually securing a controlling interest in the targeted company with the potential disadvantages that could arise. In order to make this type of assessment, a mergers and acquisitions valuation will look closely at factors such as assets, cash flow, market position, and earnings potential.

The exact range of factors that are considered as part of the mergers and acquisitions valuation will depend on the ultimate purpose for the attempt to gain control of the target. If the idea is to integrate the target into a family of business operations already owned by the entity attempting the takeover, there is a good chance that the target is being considered because of its ability to generate profits over the long-term and also indirectly enhance the profits earned by the other businesses in the group. When the plan is to acquire the company, sell its assets at a profit, and eventually dismantle the business, then the primary interests are typically what can be earned from selling those assets in today’s market. In either scenario, the purpose of the valuation is to make sure any investment on the front end of the acquisition is covered by what happens later on, and still allows the buyer to make money in the deal.


A mergers and acquisitions valuation that is focused on holding the acquired company over the long-term will often look closely at the infrastructure of the target. This is because the plan is usually to keep the business in operation, possibly adapting the operation in some manner that will increase profitability. In order to do this, factors such as the rate of production, the client list, age and condition of manufacturing equipment, and the position of the company in the marketplace is very important. By determining that the company is already profitable and has potential to increase that profitability in the years to come, the buyer may find the investment of time and capital needed to manage the acquisition is highly likely to worth it.

The corporate raider will also conduct a mergers and acquisitions valuation to make sure the acquisition of the target company will result in turning a profit. Raiders often look for businesses with assets above and beyond those needed for the core operation. Ideally, the raider is able to take over the company, sell off the assets, and still have a viable business operation that can then be resold to the highest bidder. With a little luck, selling off the assets more than covers the expenses incurred during the takeover attempt, leaving the funds generated by the sale of the target to a new owner a free and clear profit.

There is no one right way to conduct a mergers and acquisitions valuation. While most will be concerned with the net worth of the target, sales figures, operational expenses, range of assets, and the resale value of the business in the current market, other factors that are unique to the individual situation may come into play. As long as the buyer believes he or she will receive enough benefit or reward from the venture to make the investment worthwhile, there is a good chance that attempts to gain control of the target will commence.


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