The 2020 Mid-Year Economic Update_long

Tip: Weigh Value from Both Perspectives in M&A

Consider these questions to determine where real efficiencies are and what a merger could provide.

In a proposed or pending acquisition, benefits and drawbacks can compete and make it difficult to identify the most beneficial path forward. Consider the value from both sides of the transaction to determine the most valuable decision, says Jim Hill in The Mechanics of a Hostile Takeover.

Hill, executive chairman of Benesch, an Ohio-based law firm with experience in private equity, says that two questions must be asked and answered objectively to make that decision:

1.       What kind of value is going to be created?

2.       Is this really good for our shareholders?

Although actual hostile takeovers are not that common, he says, both the offeror and the target company should consider these questions to determine where real efficiencies are and what a merger could provide in terms of company growth.

For companies looking to acquire, the process can be expensive, especially when the target company is not willing to sell. And disruptions can significantly affect business operations in cases where the companies are competitors if the acquisition is completed.

For targeted companies, the overall value of remaining independent must be addressed separately from any sentimental attachments to the business.

“If the offeror comes in with a gargantuan price – say it’s a 40 percent premium to your stock price – it’s a lot harder to say no,” Hill says. “Can you really say to your shareholders, we’re going to stay the course, and we’re going to be able to create that value anyway?”

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