What are the key drivers that affect a business's value during a merger?

Valuation starts with objective information: historical financials. But then, the financials are projected into the future and discounted back to the present. Both the projections and discount factor inject incredible amounts of subjectivity. To win the subjective analysis, control the conversation about the underlying drivers of value. These include: 1- Organization Capitals like systems, knowledge, culture and strategy 2-Relationship Capitals with employees, customers, suppliers and the community, and 3 - Natural Capitals including the company's environmental impact and risk. According to Ocean Tomo, 90% of the value of public companies can be attributed to this portfolio of intangible capital.

Cultural Fit by far. Everything else can be modeled and hyper analyzed. Cultural fit usually never goes past the Board and key management, if they sort of get along, then the assumption is that the merger will work out. Leadership styles, management styles, conflict resolution, team participation, reviews, staffing, attitudes to new products, diversity, this is where the merger will succeed or fail in delivering the promised economic value. If you search for failed mergers - it always comes down to the culture as the reason for the failure. Always.

Un factor que puede afectar mucho el valor y no se menciona muchas veces es la pedida de talento . Difícil de cuantificar pero muy valiosa .

There are deals that happen for purely financial reasons and those tend to be valued based on a multiple of EBITDA and the buyer's cost of capital. These will be soemwhere between 4 and 10 times EBITDA. Others are done for strategic reasons, even if there is no cash flow, based on technology, patents, incremental revenue for a larger sales platform, etc. These deals can have pricing far in excess of trailing revenues. These are the deal one looks for as a risk equity investor.

Efectivamente Pepino, suele haber fuga de talentos cuando empieza el proceso de fusión. Otro riesgo relacionado es la pérdida de clientes pasivos y eventualmente también de clientes activos que sienten que la fusión afectará sus límites de crédito

Assess the root causes of synergy challenges, such as cultural differences or incompatible systems. Develop a detailed integration plan with clear objectives and timelines. Foster open communication and collaboration between teams. Consider phased integration to manage complexities. Seek input from employees and stakeholders. Continuously monitor progress and adjust strategies as needed to ensure successful synergy realization.

To understand the potential for strategic fit, you have to have a good understanding of the existing value creation system of each company. Create a map of their customer and stakeholder value expectations and the work that the companies do to meet those expectations. Identify the capabilities, processes, resources and results of key work categories. With these two maps and related data side by side, you can understand where there is overlap (cost synergies) and where there are complements (the most exciting: growth and innovation synergies).

My post on LinkedIn: Undoubtedly, it is pleasing to hear from a foreign TV Report praising India in the world economy. Chandogya Upanishad talks of our mind: It is subject  to pleasure and pain, expands when praised, contracts when criticized, admires itself, and is lost in the masquerade. What CU states is of the ego-system, in Industry and Government. As we have seen before, Tom, Dick, and Hindenburg can take any major company to the cleaners. We are not prepared yet. A business’s value is affected by the ego system preventing growth, creating a major gap with the ecosystem. My work SOS [Subject-Object-Self] Governance standards/Ratings are as set by the ecosystem - the key for a successful M&A between the two entities.