ABSTRACT
Historically, the mergers and acquisition (M&A) process is undertaken primarily to grow inorganically or to achieve investment returns. A financial valuation of the target acquisition is completed by the acquiring business in order to determine an acceptable purchase price for the entity. The process used to develop the business valuation is meant to bring clarity and visibility into the expected financial synergies and strategic advantages of the new entity. However, failure to achieve the investment returns expected at the original acquisition event according to the financial valuation occurs frequently (Straub 2007; Pautler 2001). To make matters worse, a combination of incomplete, insufficient or incorrect assessments of the target business will increase the likelihood of missing investment expectations. Due to the frequent limits on time and data access during the due diligence process, along with the high level nature of the valuation, many acquiring firms miss their chance to investigate a potential arbitrage generated after a more detailed understanding of the target business’s strategic pricing practices and organization. A more rigorous assessment of a target company’s pricing capabilities and the associated improvement opportunities can substantially sharpen the enterprise valuation and the subsequent value capture from M&A.
