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We examine the key selection criteria that acquirers should consider.
In mergers and acquisitions, the buyer assesses not only financial evaluations but also strategic and operational elements from various angles to select acquisition targets.
The key is to select companies that can maximize performance and integration potential post-acquisition.
This column examines the main selection criteria that buyers should consider.
Financial Soundness
A company's financial condition is a critical factor for determining the stability of operations and growth potential after acquisition.
Key evaluation items include profitability (EBITDA, operating margin, net profit margin, etc.), cash flow, debt ratio, and financial statement analysis.
Especially, companies that maintain stable cash flow can support operational stability and expand investments post-acquisition, whereas companies with excessive debt levels may face increased financial burdens, necessitating careful analysis.
Growth Potential
The ultimate goal of M&A is to maximize corporate value. Therefore, it is essential to analyze the growth potential of the target company. It is important to assess industries with high growth potential, the possibility of new product and technology development, and the ability to enter new markets to establish post-acquisition expansion strategies.
Competitive Advantage
Evaluating whether the target company can maintain its competitiveness in the market is a crucial factor in determining its long-term survival.
One must analyze the company's competitive advantage considering brand value and recognition, ownership of patents and intellectual property, customer base, and contractual relationships.
Management Capability
One should evaluate the experience and performance of the management, leadership and vision, and the suitability of the organizational culture to ensure that integration can be smoothly achieved post-acquisition.
If there is a high likelihood that the existing management will continue to operate the company post-acquisition, it is necessary to analyze whether their operational capabilities and management strategies can contribute to increasing corporate value.
Operational Efficiency
Companies with high operational efficiency can easily achieve cost reduction and profit maximization post-acquisition.
It is important to review how efficiently the company is operating in terms of cost structure analysis, supply chain, productivity, and technological infrastructure.
Legal and Regulatory Issues
It is also essential to pre-analyze the legal risks of the target company.
One must analyze the expected risks by confirming whether the target company complies with related laws and regulations and whether there are any legal lawsuits or disputes.
If the target company is involved in ongoing lawsuits or legal disputes, it is necessary to estimate the potential contingent liabilities in advance and assess the likelihood of an adverse outcome.
Possibility of Integration Post-Acquisition
Whether the two companies can integrate smoothly post-M&A is also an important consideration.
One should evaluate the success potential of PMI (Post-Merger Integration) by analyzing the possibility of cultural integration and the ease of system and operational integration.
If there are significant cultural differences, there may be friction during the integration process, and if integrating IT systems and operational processes is difficult, additional costs and time may be required.
Conclusion
In M&A, it is important for buyers to thoroughly analyze the target company's financial stability, growth potential, competitive advantage, management capabilities, and operational efficiency to select the optimal company.
WMD provides precise and tailored advisory services, composed of M&A experts from major accounting firms and law firms such as Samjung KPMG, Kim & Chang, and SEJONG Attorney at Law.
Furthermore, we swiftly and precisely evaluate the competitiveness and financial soundness of target companies through our AI corporate analysis system ATLAS, trained on a database of 1 million companies.
ATLAS supports the establishment of optimal M&A strategies by guiding expected sale prices depending on market conditions based on an automated corporate value assessment system.
Experience the strategic approach combining WMD's M&A expertise with AI technology.
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