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Related Experiment Videos

Developing capital investment guidelines for acquisitions.

J T Bergman, D C Gordon

    Healthcare Financial Management : Journal of the Healthcare Financial Management Association
    |April 9, 1988
    PubMed
    Summary

    Financial managers need a structured approach for evaluating acquisitions. Key strategies include assessing strategic fit, using appropriate risk-adjusted discount rates, and selecting the right capital allocation methods for successful investments.

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    Area of Science:

    • Business Administration
    • Finance
    • Investment Management

    Background:

    • Financial managers face increasing pressure to evaluate new investment opportunities, particularly acquisitions.
    • A systematic approach is crucial for the thorough evaluation of potential acquisitions.
    • Existing evaluation frameworks may not adequately address the complexities of modern mergers and acquisitions.

    Purpose of the Study:

    • To outline a comprehensive framework for financial managers to evaluate acquisition opportunities.
    • To emphasize the importance of strategic compatibility, risk assessment, and capital allocation in acquisition decisions.
    • To provide actionable strategies for ensuring successful acquisition outcomes.

    Main Methods:

    • Developing an evaluation framework based on strategic compatibility analysis.

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  • Implementing risk-adjusted discount rates for investment assessment.
  • Selecting appropriate capital allocation methodologies.

    • Main Results:

    • A structured evaluation process enhances the likelihood of successful acquisitions.
    • Strategic compatibility is a critical determinant of post-acquisition performance.
    • Appropriate risk-adjusted discount rates and capital allocation methods mitigate financial risks.

    Conclusions:

    • A robust acquisition evaluation framework is essential for financial managers.
    • Integrating strategic, financial, and capital allocation considerations leads to better investment decisions.
    • Adopting these strategies can significantly improve the success rate of corporate acquisitions.