Acquisitions, mergers or asset purchases vary as much as how you value them. Two out of three acquisitions fail. Many reasons can be given, including poor management and just plain bad luck. A common reason for these failures is that many acquirers pay too much. The four primary reasons are overoptimistic appraisal of market potential, overestimation of synergies, overbidding and poor post acquisition integration.
Markets react in two ways to acquisitions or mergers.
First, taking into account not only expected costs and benefits, but also the market's expectation that the deal will actually be consummated. The bad news is neither approach provides grounds for an optimistic forecast. Estimate continuing value beyond the specific forecast. A high-quality estimate of continuing value is necessary to any valuation, because continuing value often accounts for a large percentage of the total value of the company. As a business owner, you need to justify to the corporate finance officers that the capital you're seeking can be put to an effective use and support substantial ROIC for their investors.