Key Clues Investors Can Learn From M&A

As a firm begins to explore M&A activity prudent investors can learn a lot about the company they have, or plan to, invest in. First, and possibly most important, it is a great opportunity for the investor to observe how management views the value of their own company and where the synergies are expected to be realized. The biggest clue for this is the payment method chosen. The payment method, which can be cash, stock, or a mix of the two, provides a candid assessment of the buyer’s perspective on the relative value of a company’s stock price and future growth assumptions. Second, the type of M&A transaction can also leave clues that paint a picture of future goals and perceived strengths and weaknesses of both the buyer and the target. M&A: a basics refresh Before we get into the specific payment methods, I will cover a few types of transactions as they somewhat impact the payment method. A merger can be classified as: • Statutory – the…

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