Summary of M&A Deal Evaluation

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According to management consultants Philip Dunne and Angus Hodgson, major stakeholders in mergers and acquisitions tend to overemphasize earnings per share (EPS) as a metric for assessing potential success. However, “EPS accretion” doesn’t necessarily enhance shareholder value, nor does “EPS dilution” always destroy it. Other measures can be more valuable in predicting whether an M&A deal will prosper. getAbstract recommends this astute overview to executives and investors considering an M&A transaction now or in the future.

In this summary, you will learn

  • Why mergers and acquisitions often fail to enhance shareholder value,
  • Why earnings per share should not be your only M&A evaluation tool, and
  • Why executing “fact-based due diligence” is the best way to predict M&A success.
 

About the Authors

Philip Dunne is a partner with global management consultancy A.T. Kearney, where Angus Hodgson is a principal.

 

Summary

A substantial proportion of mergers and acquisitions fail to enhance shareholder value. Often, the problem is due to poor integration efforts between companies. However, in many cases, an M&A transaction flops because the deal’s stakeholders have placed inordinate emphasis on the new entity’s potential for raising earnings per share (EPS). In one survey, 75% of corporate executives, stock analysts and investors cited EPS “accretion” or “dilution” as a critical factor when appraising a potential acquisition.

Companies can grow EPS either “organically” through improved performance – which is always a...


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