Mergers & Acquisitions
In an increasingly complicated and competitive global marketplace, many companies find it necessary to merge and/or acquire other companies in order to accomplish their overall objectives. If this describes part of your business model, then you should be careful to consider at least the following items: cash flow, culture clash, customer attrition, and long-term value. Many mergers and acquisitions result in tying up more cash flow and resources than planned. All of the tangible and intangible factors of bother companies need to be aggregated into what the final company will look like. Realistic assumptions need to be made relative to the cash flow and resources that the merger or acquisition will require. Almost every time a merger or acquisition takes place, we read many newspaper articles about the clash between the cultures of the companies involved. Regardless of the promises made during the due diligence and deal-structuring phase of putting a merger or acquisition together, the controlling company usually ends up replacing many management and key employees of the acquired firm because the new regime is just too different for them to stick around. When a price is paid for a business that exceeds its book value, defined as the assets of the company minus the liabilities of the company, an assumption is made that the company will continue to generate cash flow in the future. In order for any business to generate cash flow in the future, it needs good-paying and loyal customers today. Some mergers and acquisition fail to consider the amount of customer attrition, or loss, that will occur as a direct result of the transaction. Realistic expectations need to be set in this area in order to truly understand the value proposition of the deal. Realistically considering employee and customer turnover as well as the cash flow and resources required to transition the companies involved into one cohesive unit needs to be part of the financial modeling done to understand the overall value of the transaction. Our CFOs have experience and business acumen that allows them to realistically look at a merger or acquisition and determine the value of the transaction.