Should two companies join together? A feasibility study helps decide. What steps does this involve? First, look at all the costs of combining operations. Will bigger size and scale boost earnings? When might that income boost happen? Compare costs and future revenues to see if the deal is worthwhile. Also, factor in risks; it might not succeed. Doing a financial feasibility study in the UAE gives companies the facts to determine if partnering up pays off.
Analyze your merger’s financial feasibility in 12 simple steps
Step 1: Calculate Synergy Benefits and Costs
Calculate Synergy Benefits and Costs Estimate the value boost from merging capabilities versus integration expenses to understand the dominant effects driving potential merger success.
Step 2: Prepare pro forma financial statements
Prepare pro forma financial statements. Project forward 3-5 years on how combined income statements, cash flow, etc. could look based on current individual company data to quantify merger impacts over time.
Step 3: Model the best and worst-case scenarios.
Run merger models under optimistic and pessimistic assumptions to bound potential upside and downside risk factors. Stresstest how results fluctuate given different conditions.
Step 4: Analyse Human Resource Impacts
Study expected headcount changes, facility/location consolidations, and personnel interactions required for a cohesive culture to minimise talent losses during transitions.
Step 5: Consider Legal and Regulatory Hurdles
Assess if any business agreements, import/export policies, or data security protocols pose compliance barriers that could obstruct integration or require renegotiation before pursuing a deal.
Step 6: Review Geographic Footprints
Determine if physical assets and inventory spanning wider operational locations post-merger introduce a currency, tax, shipping, or inventory blindspot vulnerabilities that jeopardise financial tracking and forecasting accuracy.
Step 7: Verify technology compatibility
Vet that existing IT systems, equipment, software, and data standards can be consolidated cost-effectively, or if upgrades add complexity that slows realising digital synergies.
Step 8: Conduct market research on new combined offerings.
Test pricing, feature preferences, and purchase intent for hybrid merged products and services to confirm the expanded catalogue indeed taps wider consumer demand vs. just cannibalising existing sales.
Step 9: Define Leadership Selection
Agree whether the leadership team will blend executives from both companies or skew towards one legacy firm to set the scope for power alignments and conflicts.
Step 10: Review Historic M&A Sector Trends
Research specifics on recent comparable merger successes and lessons learned for unique operational or financial considerations based on industry-specific integration complexity.
Step 11: Set realistic timelines.
Overlay dependency task logic across evaluation, close, transition, and optimization phases to spot precedence constraints that dictate minimum elapsed time spans before achieving breakeven or business growth milestones.
Step 12: Calculate ROI Ratios and Likelihood
Quantify the degree of certainty in project expense payback periods and return on invested capital metrics based on risk-adjusted sensitivity forecasts as the ultimate feasibility go-no-go gauge.
How Do You Assess the Financial Feasibility of a Merger or Acquisition of Businesses in the UAE?
Here is a guide on “How to Access the Financial Feasibility of a Merger or Acquisition for Businesses in the UAE” in a simple writing style:
Step 1: Calculate Integration Costs
Add up all expected one-time costs to combine the companies. This includes things like:
- Buying new equipment
- Training employees
- Changing buildings and offices
- Paying severance for layoffs
Step 2: Estimate Revenue Increases
Predict how much sales and profits will rise from merging. Will you gain market share? Attract more customers. When will gains happen?
Step 3: Compare Costs vs. Benefits
See if higher earnings cover integration costs. Check the “break-even” point. Also, consider the risks of overrunning budgets.
Step 4: Project Timelines
Figure out how long merging will take before you see more profits. Assign tasks like:
- Announcing the merger
- Getting approvals
- Blending teams and systems
- Launching unified operations
Step 5: Weigh leadership plans.
Decide which company’s executives will lead. Balance power and culture issues.
Step 6. Research market forces
Study how economic changes in the next five years could impact merger gains.
Step 7. Assess worst-case scenarios
Be realistic if earnings disappoint or merger problems arise. Have backup plans to protect investments.
Conclusion
UAE firms cannot afford to blindly rush into mergers or acquisitions without doing their financial homework first. By methodically following feasibility study steps to quantify integration costs, revenue benefits, timing, and risk scenarios, company heads have data to decide if marriages make prudent sense. This upfront analysis protects promising ventures from entering partnerships that end sinking investments rather than achieving growth.
