Financial Analysis: A Controller’s Guide, Second Edition

Chapter 6. Evaluating Acquisition Targets

There are a great many kinds of analysis needed when a company is contemplating an acquisition. For a full acquisition, involving the assumption of all financial, environmental, and legal liabilities, as well as all assets, there are a great many subsets of analysis to perform. However, for a lesser acquisition, such as the purchase of all or specific assets, the number of analyses is substantially less. In this chapter, the types of financial analysis are broken down into a wide range of categories, which makes it easier for a controller to select just those needed for a specific type of acquisition.

This chapter also presents a brief overview of acquisition analysis, the obtainability of information for such analysis, and a series of topics that cover the different types of analysis work that must be conducted. Of special interest is the section on fraud analysis. This topic is of considerable importance, given a controller’s complete lack of knowledge of the adequacy of control systems within the acquisition target. The chapter finishes with a set of handy checklists that itemize all of the analysis steps noted earlier in the chapter.

Some of the analyses listed here are not strictly financial in nature, since legal issues are also noted. These extra analyses are added for the sake of being comprehensive, though the main focus of the chapter is on the financial analysis of acquisition targets.

Overview of Acquisition Analysis

The analysis ...