Business Decisions: Acquisitions and Mergers

Business Decisions: Acquisitions and Mergers

Growth in the banking industry is difficult due to increasing competition, the height of the increasing regulatory environment, and the rising expectations of customers. Growth must occur in most cases by acquisition. The decision to acquire or merge with another business is one that should entail a great deal of research before committing to the transaction. Research should begin with understanding the business purpose, the financial details of the business, and the fit between the two entities. This paper will explore the methods used for researching potential combinations and a general plan for proceeding with the transaction.

First Steps

The first step of any acquisition plan should be to develop clear priorities for the transaction. The purpose should be clear to all members of management. Possible purposes for the acquisition could be creating a larger product offering for clients, eliminating competition, or expanding into different markets. This purpose will help to develop criteria when examining possible potential acquisition targets. The criteria should ensure that the potential acquisition targets could help to accomplish the goals of the company in question. Criteria can be formatted in the form of a due diligence checklist. According to Best Practices LLC, the completion of this checklist will allow both companies to have buy-in on the overall strategic value and direction of the combination before proceeding with integration.

Analyzing Financial Information

Examining the current financial information of a potential acquisition is extremely important. Analysis should be performed on current as well as past financial statements. These financial statements should include the balance sheet, the income statement, and the statement of cash flows. This information will provide data on assets, liabilities, and income as well as ratios on accounts receivable conversion and debt to equity information. The income information should also be provided broken out by product line. This will provide researchers with information on the success of the different lines offered by the company and potential for growth. Additionally, researchers should request copies of previous tax returns to substantiate earnings over the past ten years. Examination of all this information will add to management's knowledge of the company as well as the possible