When companies are in the process of evaluating mergers it is essential to conduct a thorough study required to determine whether the merger makes sense financially. This involves a discounted cashflow (DCF) as well as comparing and contrast trading comparables, as well as previous transactions. It also involves calculating future synergies to be realized when the deal has been concluded. This is a complicated step that requires the knowledge of an analyst with financial experience with experience in M&A modeling.
A dilution/accretion analysis is crucial in determining the profitability. This analysis determines whether a merger will increase or decrease earnings per share (EPS), post-transaction, of the acquiring firm. The process begins by estimating pro-forma earnings per share (EPS) of the acquirer. An increase in earnings is considered to be a positive while a decrease would be considered a negative.
The analysis must also consider the impact of the merger on the competition between merging companies and the market. This includes the possibility of anti-competitive impacts, such as deals made to the merged company or a heightened concentration of power in the market. While there is some research in this area, more work is needed to find quantitative analyses that are suitable for assessing the competitive impacts of horizontal mergers. The research should also look at other barriers to coordination that are already present on the market, and how a merger can alter this.