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Financial Services Firms: Governance, Regulations, Valuations, Mergers, and Acquisitions, 3rd Edition by Zabihollah Rezaee

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Chapter Thirteen

External Environment Assessment

The analyses described in Chapters 11 and 12 provide important insight into the bank being valued. They are, however, inwardly focused analyses. To complete the analysis, it is essential that an assessment be made of the external environment in which the bank operates.

This chapter reviews techniques that can be used to determine the viability and future prospects of the market served by the bank. Each situation will be different, but there are certain basic measures that are indicative of market potential and banking opportunity. Here the classic PEST analysis, which contains political analysis, economic analysis, social analysis, and technological analysis, is used to discuss the external environment (see Exhibit 13.1).

Exhibit 13.1 PEST Analysis

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Impact of External Environment on Value

The condition and viability of the external environment has an important bearing on a bank's value. All other things being equal, the better the market, the higher the value of a bank operating in that market. In an active, growing market, there tends to be greater opportunity, less price competition, and more customers. Growing, vibrant markets create opportunity and, if capitalized on, create value.

In Chapter 12, the tenth P factor, potential, addressed the issue of opportunity and how well the bank seizes on this opportunity as a contributor ...

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