Evaluating M&A Deals: Introduction to the Deal NPV

Case Solution

Carliss Y. Baldwin
Harvard Business School ()

Introduces a framework for evaluating mergers and acquisitions. Considers that the criterion for a good business is that it creates value for shareholders; that is, it has a NPV of positive agreement. Analyze the NPV of the deal from the perspective of both the buyer and the seller. Explain how a positive NPV on a trade results in a positive predicted accumulation of abnormal returns. It then presents a framework for calculating the net present value based on the consideration paid, the work to be done, the goal value, and the value created by the restructuring or synergy. Finally, the concept of “fragility risk” is introduced, which is essentially the risk that the buyer’s plans go awry.

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