Budgeting M&A

Budgeting M&A

Budgeting M&As

Restructuring being a strategic decision of management has to be evaluated considering the benefits envisaged and the costs involved in the restructuring planned for. The benefits are broadly distinguished as financial and other benefits. The other benefits may include creating entry barriers for competitors, use inorganic mode of growth as an entry strategy, concentration on core-competence etc. However, most of the time benefits are envisaged in financial terms, which are also the easiest way to evaluate the rightness or otherwise of the decision. In other words the decision of M&A is like any other decision of capital budgeting. The capital budgeting decisions are generally evaluated by applying the conventional methods like, payback period, discounted cash flow technique, internal rate of returns etc., however the said techniques can not be applied as it is to evaluate the M&A decisions mainly due to involvement of both qualitative and quantitative factors. Well, the fundamentals of capital budgeting can be applied to evaluate the M&A decisions if the evaluator can identify the all factors of costs and benefits and express them in monitory terms. The complexity, however, relates to visualize all costs and benefits as well as time of their accrual. We tried to identify some general costs and benefits involved in M&As. As the costs and benefits occurring in different restructurings are inherently different we have distinguished them accordingly. Further more the costs and benefits also vary case-to-case basis; the factors we have consider are general and mode of their evaluation is indicative.