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M&A Quick Analysis Worksheet

Every merger and acquisition is different and should be viewed
on its own merits. However, there are several rules of thumb that investors and
executives use to decide whether a deal makes sense. Unfortunately, the
importance of each individual rule varies according to a firm's
specific acquisition strategy. A technology firm that acquires early-stage
startups would be crazy to expect them to be profitable from the get-go.
Similarly, a medical-services business is likely to care more about the quality
of personnel than the assets of the business.

How, then, to quickly decide if a deal makes sense? We've
put together an assessment questionnaire to help you think through the various
dimensions of an M&A decision. The questionnaire is no magic bullet,
nor is it a substitute for the hard thinking that must go into a formal
due-diligence process. But in just a few minutes, it could provide an early
indication of whether you're on the right track — or
heading for an M&A disaster.


Part 1: Financials


Revenue: If the target acquisition candidate has a
revenue stream, divide the expected purchase price by the average yearly
revenue stream over the past two years.



  • [ ] The result is less than or equal to 2. (4)


  • [ ] The result is more than 2 but less than or equal to 3. (4)


  • [ ] The result is more than 3 but less than or equal to 4. (3)


  • [ ] The result is more than 4 but less than or equal to 5. (0)


  • [ ] The result is more than 5 or the company has no revenue
    stream. (-1)

Profit: If the target is profitable, divide the
expected purchase price by last fiscal year’s earnings before taxes,
depreciation, and amortization. (If not profitable, score 0.)

  • [ ] The result is less than or equal to 5. (6)


  • [ ] The result is more than 5 but less than or equal to 7. (4)


  • [ ] The result is more than 7 but less than or equal to 9. (2)


  • [ ] The result is more than 9 but less than or equal to 11. (0)


  • [ ] The result is more than 11 or the company is not
    profitable. (-1)

Stock Value: If the target is publicly held, divide
the dollar value of the target’s outstanding stock by its last year’s
net profit. Do the same for your firm.

  • [ ] The target’s valuation is more than twice your
    firm’s valuation. (5)


  • [ ] The target’s valuation is more than your firm’s
    valuation. (3)


  • [ ] The target’s valuation is identical to your firm’s
    valuation or the target is not publicly held. (0)


  • [ ] The target’s valuation is less than your firm’s
    valuation. (-3)


  • [ ] The target’s valuation is less than half your
    firm’s valuation. (-7)

Subscore #1: Add up the points for each answer: _____
(SS1)

Part 2: Product


Uniqueness: The target’s offerings are:



  • [ ] Absolutely unique in this industry (5)


  • [ ] Better than other offerings (3)


  • [ ] About average for the industry (1)


  • [ ] In need of some work to come up to par (-1)


  • [ ] Obsolete and out of date (-6)

Customer Base: The target’s product
offerings have:

  • [ ] A fanatically loyal user base (4)


  • [ ] An enthusiastic user base (3)


  • [ ] A set of early adopters (2)


  • [ ] Some interested potential customers (1)


  • [ ] Existing customers who are actively hostile (-5)

Market Share: The target’s product
offerings command:

  • [ ] A major share in a rapidly growing market (7)


  • [ ] A minor share in a rapidly growing market (3)


  • [ ] A major share of a mature market (3)


  • [ ] A minor share in a mature market (2)


  • [ ] The product has yet to establish a market (-2)

Subscore #2: Add up the points for each answer: _____
(SS2)

Part 3: Personnel


Competence: In general, the target’s
management:



  • [ ] Possesses unique knowledge and experience (5)


  • [ ] Would be a big asset inside any organization (3)


  • [ ] Are about average for the breed in this industry (2)


  • [ ] Would be accepted, but without enthusiasm (1)


  • [ ] Could do cameos in a “Dilbert” comic
    strip (-3)

Uniqueness: In general, the target’s
employees:

  • [ ] Possess technical skills that are impossible to find
    elsewhere (7)


  • [ ] Would be extremely expensive to recruit separately (5)


  • [ ] Have compatible skills with your employees (3)


  • [ ] Are barely adequate to the tasks at hand (1)


  • [ ] Are candidates for layoffs soon after the merger (-4)

Culture: Our corporate culture compared to the target’s
corporate culture is like:

  • [ ] Manhattan compared to Queens (5)


  • [ ] New York City compared to Boston (3)


  • [ ] New York State compared to Arkansas (-1)


  • [ ] The United States compared to Kazakhstan (-5)


  • [ ] Planet Earth compared to “Bizzaro” world
    (-10)

Subscore #3: Add up the points for each answer: _____
(SS3)

Part 4: Your M&A Strategy


Rank the following strategic reasons for your M&A
from 5 (highest) to 1 (lowest) according to their importance to your firm:


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  • Improved revenue and profit.
  • Reduce cash on hand
  • Obtain advanced technology
  • Get hard-to-find personnel
  • Expand into new markets
  • ________ A
  • ________ B
  • ________ C
  • ________ D
  • ________ E

Final Scoring


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  • Multiply A and B and SS1:
  • Multiply C and E and SS2:
  • Multiply D and SS3. Quadruple the
    result:
  • _________
  • _________
  • _________
  • Add the subtotals to get your Final Score:
  • _________

Analysis


  • Final score is over 300. This is a highly
    attractive deal. You have obviously done your homework and found a
    candidate that matches your strategy.
  • Final score is between 200 and 300. This is an
    excellent deal. While there may be some challenges, there’s a
    good chance that the acquired firm will integrate well and help you
    achieve your corporate strategy.
  • Final score is between 100 and 200. This is a

    marginal deal. There are some things about the acquisition that might be
    advantageous, but there are problems waiting in the wings. Proceed with
    great caution.

  • Final score is less than 100. Forget it. Run, don’t
    walk, to the nearest exit.