Why are so many companies interested in acquiring other organizations? Is it because of positive return rates or return investments that are more commonly known as IRR or ROI, respectively? Are the deals conducted so as to enjoy a greater return than weighted capital costs?
The answer to all of the above questions is a no, yet the factors presented serve as metrics for evaluating the success of an acquisition. An acquisition is not successful when the necessary work was not done before the deal was made. This includes identifying the tasks and defining all the goals properly. Had this been done and the company prepared itself well for the integration, success could be measured on other factors as well that had nothing to do with finances. According to the merger aspects, these are usually better because they provide you with a clearer picture.
The prime reason which leads to the purchase of another organization is synergy. So what does this term mean? It actually refers to the fulfillment of an interest or the goal of the buyer company through the acquisition. Examples of this could be increasing their customer database, reducing the churn rates and decreasing costs. As such, when ever another company is acquired, it is important to keep a track of progress in terms of these goals. Only then can success be properly determined.
Every merger is characterized by a phase in which the merged companies try their best to deliver synergies. The company should strive for change and utilize resources in more efficient ways. Since everyone involved already expects things to change, that should actually happen, and in a positive manner so that no one gets disappointed. If a company does this properly, the acquisition will be a success and the combined company can expect more opportunities to come their way. Should they fail at it, they might lose what they previously had.
After the Deal
All the above factors have to be evaluated before the agreement is made final. Once this happens, you cannot do much about the above and will have to look around for other means. This is when the IRR and ROI step into the picture. If analysis is made beyond this, more useful results can be derived. For instance, companies could use the number of their clients, average costs per products or average revenue per client. However, deterring the success of a merger prior to the actual deal provides a more accurate picture.
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