Goal of M&A is more than transferring value

BVWireIssue #96-4
October 29, 2010

Stephen McGee (Grant Thornton) has some fun with valuation formulas by coming up with a version of standard equations for use in M&A transactions: Price = Value + (S+C)e.

McGee explains:

  • V is the quantifiable value calculated using one of several traditional valuation approaches: comparable public companies, comparable transaction multiples or a discounted cash flow analysis – methodologies you can use to calculate a somewhat scientific value for a company
  • S is the story, and it needs to be a compelling one
  • C is the competition generated to buy the company, and
  • e is the emotion that comes with any M&A transaction.

“The goal of any M&A transaction should be to create — and not simply transfer — value,” writes McGee.   He believes sellers who approach the transaction from the point of view of Price = Value + (S+C)e  can expect the selling price to be greater than the company’s value.

Click here for McGee’s article “Using M&A Transactions to Create Value”, which was published in the recent issue of Dealmaker.

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