Investment checklist - M&A

Investment checklist - M&A

Evaluating Mergers & Acquisitions

  • How does management make M&A decisions?
  • Have past acquisitions been successful?

The tenth section of the investment checklist, "Mergers and Acquisitions (M&A)," pertains to understanding a company's strategy regarding mergers and acquisitions. This could be an important growth driver but can also pose significant risks, so it's essential for investors to assess this aspect carefully.

  1. M&A History: Examine the company's past M&A activities. Were these transactions successful in achieving their stated goals, such as revenue growth, cost savings, or market expansion? Did the company manage to integrate the acquired businesses smoothly?
  2. M&A Strategy: Understand the company's strategy regarding future M&As. Does the company intend to grow aggressively through acquisitions, or does it prefer organic growth? If it plans more acquisitions, are these in line with the company's overall strategic goals?
  3. M&A Financing: How does the company plan to finance any future acquisitions? Will it use cash, debt, or its own stock? Each of these options can have different implications for existing shareholders.
  4. Cultural Fit: When the company acquires others, does it consider the cultural fit with the existing business? Cultural mismatch can often undermine the success of M&A transactions.
  5. Synergies: Does the company have a track record of realizing synergies from its M&A activities? Synergies can come in the form of cost savings, increased revenues, or strategic benefits like gaining new technology or market access.
  6. Regulatory and Antitrust Issues: Especially for larger companies, M&A activity can attract regulatory scrutiny. Does the company consider potential antitrust issues when planning acquisitions?

Evaluating a company's M&A strategy and execution is a key part of investment analysis. Successful M&As can significantly enhance a company's value, but failed ones can destroy shareholder value. Therefore, understanding this aspect can contribute to making a more informed investment decision.

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