Last updated on Jul 3, 2024

You're evaluating an acquisition's impact on cash flow. When is the best time to analyze it?

When considering an acquisition, understanding its impact on cash flow is critical. Cash flow, the net amount of cash being transferred into and out of a business, is a key indicator of financial health. An acquisition can significantly alter this dynamic, so it's vital to analyze its effects at the right time. The best time to delve into this analysis is multi-faceted and dependent on various stages of the acquisition process.

1 Pre-Deal Analysis

Before you even make an offer, a thorough pre-deal analysis of the target company's cash flow is essential. This involves reviewing historical cash flow statements to understand the company's cash generation patterns and sustainability. You should also project future cash flows by considering potential synergies and cost savings. This initial analysis sets the groundwork for understanding how the acquisition might affect your company's financials and helps in making an informed bid.

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Mayank Gaur

Finance Controller I FP&A Head I CA I CS I DISA I Certified in UAE Corporate Tax (ICAI) I IFRS I Blockchain (IIT-K) l Valuation Certificate (ICAI) I SAP Lead I Digital Transformation
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Conducting a thorough due diligence process before finalizing an acquisition is actually the best time. This allows us to assess the potential impact on the company's cash flow which includes reviewing the target company's financial statements, understanding its cash flow patterns, forecasting future cash flows, and considering how the acquisition will affect our own cash flows. It is essential to evaluate the synergies and potential cost savings that could result from the acquisition, as well as any additional costs or liabilities that may arise. This pre-acquisition analysis actually helps in making informed decisions and setting realistic expectations.

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Ikenna Egbosimba

Driving Bottom-Line Growth📊for B2B SaaS with Custom Revenue Forecasting Solutions | Power BI Consultant | FP&A Advisor
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A thorough diligence phase is crucial before deciding if an acquisition is worth it. Analyzing historical cash flows and estimating future post-acquisition synergies is a great starting place before making a bid. This will give a sense of what future performance could look like based on past activity and what efficiencies can be gained naturally through the acquisition.

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2 Due Diligence Phase

During due diligence, you get access to more detailed financial information, allowing for a deeper analysis of how the acquisition will impact cash flow. You should scrutinize the target's quality of earnings, working capital trends, and capital expenditure requirements. This stage is crucial for identifying any red flags or deal-breakers that could adversely affect future cash flows and should influence the final purchase price.

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3 Deal Structuring

When structuring the deal, consider how different financing options will affect cash flow. For instance, using debt financing might provide tax benefits but also adds interest obligations that could strain cash flows. Alternatively, equity financing dilutes ownership but doesn't impose debt servicing costs. Your choice will have long-term implications for cash flow management, so evaluate this carefully.

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4 Post-Acquisition Planning

After closing the deal, it's time to integrate the acquired company and realize the anticipated cash flow benefits. Post-acquisition planning should include a detailed roadmap for achieving synergies and efficiency gains. Monitor the integration process closely to ensure that it's contributing positively to cash flow as expected, and be prepared to make adjustments if it's not.

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Ikenna Egbosimba

Driving Bottom-Line Growth📊for B2B SaaS with Custom Revenue Forecasting Solutions | Power BI Consultant | FP&A Advisor
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Post-acquisition integrations can vary widely depending on the size of the transaction. Be sure to monitor cash flows closely during this time to assess the overall impact of the integration. This also includes financial performance tracking of the acquired company to ensure that the expected benefits are being realized.

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5 Ongoing Monitoring

Once the acquisition is complete, ongoing monitoring of its impact on cash flow is necessary. Set up regular reviews of combined cash flow statements to track performance against expectations. This helps in quickly identifying and correcting any deviations from projected cash flow improvements and ensures that the acquisition continues to align with strategic financial goals.

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6 Strategic Review

Finally, conduct a strategic review annually to assess whether the acquisition is meeting its long-term financial objectives, including its impact on cash flow. This should involve revisiting the initial assumptions made during the pre-deal analysis and due diligence phases and comparing them with actual performance. Use this insight to inform future acquisition strategies and cash flow management practices.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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You're evaluating an acquisition's impact on cash flow. When is the best time to analyze it?

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1 Pre-Deal Analysis

2 Due Diligence Phase

3 Deal Structuring

4 Post-Acquisition Planning

5 Ongoing Monitoring

6 Strategic Review

7 Here’s what else to consider

Corporate Finance

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