- July 30, 2022
- Posted by: Ramkumar
- Category: Posts
Five Biggest Mistakes By Buyers In M&A
Five biggest mistakes acquirers make in merger and acquisitions transactions:
1)Instead of arriving at the cost of capital for the target company, they use the acquirer’s cost of capital (#WACC).
2)The acquirers pay a fixed 20% control premium over the target’s intrinsic value without analysing whether the premium adds value.
3)The acquirers misidentify, then overestimate and end up misvaluing synergies.
4)The buyer compares the transaction, exit, and revenues/EBITDA multiples of the high-growth companies with the target company without realising the reason behind the high premium for these comparables.
5)The acquirer decides the purchase price first and then values the target company, thus introducing a valuation bias.