'good corporate governance' is simply 'good business'.

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Business valuation 
The five most common ways to valuate a business are 
  asset valuation, 
  historical earnings valuation, 
  future maintainable earnings valuation, 
  relative valuation (comparable company & comparable transactions), 
  discounted cash flow (DCF) valuation 
Professionals who valuate businesses generally do not use just one of these methods but a 
combination of some of them, as well as possibly others that are not mentioned above, in order to 
obtain a more accurate value. The information in the balance sheet or income statement is 
obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an 
Audit. 
Accurate business valuation is one of the most important aspects of M&A as valuations like 
these will have a major impact on the price that a business will be sold for. Most often this 
information is expressed in a Letter of Opinion of Value (LOV) when the business is being 
valuated for interest's sake. There are other, more detailed ways of expressing the value of a 
business. While these reports generally get more detailed and expensive as the size of a company 
increases, this is not always the case as there are many complicated industries which require 
more attention to detail, regardless of size. 
[edit] Financing M&A 
Mergers are generally differentiated from acquisitions partly by the way in which they are 
financed and partly by the relative size of the companies. Various methods of financing an M&A 
deal exist: 
[edit] Cash 
Payment by cash. Such transactions are usually termed acquisitions rather than mergers because 
the shareholders of the target company are removed from the picture and the target comes under 
the (indirect) control of the bidder's shareholders. 
[edit] Stock 
Payment in the acquiring company's stock, issued to the shareholders of the acquired company at 
a given ratio proportional to the valuation of the latter. 
[edit] Which method of financing to choose? 
There are some elements to think about when choosing the form of payment. When submitting 
an offer, the acquiring firm should consider other potential bidders and think strategically. The 

form of payment might be decisive for the seller. With pure cash deals, there is no doubt on the

real value of the bid (without considering an eventual earnout). The contingency of the share

payment is indeed removed. Thus, a cash offer preempts competitors better than securities. Taxes

are a second element to consider and should be evaluated with the counsel of competent tax and

accounting advisers. Third, with a share deal the buyer’s capital structure might be affected and

the control of the New co modified. If the issuance of shares is necessary, shareholders of the

acquiring company might prevent such capital increase at the general meeting of shareholders.

The risk is removed with a cash transaction. Then, the balance sheet of the buyer will be

modified and the decision maker should take into account the effects on the reported financial

results. For example, in a pure cash deal (financed from the company’s current account),

liquidity ratios might decrease. On the other hand, in a pure stock for stock transaction (financed

from the issuance of new shares), the company might show lower profitability ratios (e.g. ROA).

However, economic dilution must prevail towards accounting dilution when making the choice.

The form of payment and financing options are tightly linked. If the buyer pays cash, there are

three main financing options:

- Cash on hand: it consumes financial slack (excess cash or unused debt capacity) and may

decrease debt rating. There are no major transaction costs.

- Issue of debt: it consumes financial slack, may decrease debt rating and increase cost of debt.

Transaction costs include underwriting or closing costs of 1% to 3% of the face value.

- Issue of stock: it increases financial slack, may improve debt rating and reduce cost of debt.

Transaction costs include fees for preparation of a proxy statement, an extraordinary shareholder

meeting and registration.

If the buyer pays with stock, the financing possibilities are:

- Issue of stock (same effects and transaction costs as described above).

- Shares in treasury: it increases financial slack (if they don’t have to be repurchased on the

market), may improve debt rating and reduce cost of debt. Transaction costs include brokerage

fees if shares are repurchased in the market otherwise there are no major costs.

In general, stock will create financial flexibility. Transaction costs must also be considered but

tend to have a greater impact on the payment decision for larger transactions. Finally, paying

cash or with shares is a way to signal value to the other party, e.g.: buyers tend to offer stock

when they believe their shares are overvalued and cash when undervalued.

[4]

[edit] Specialist M&A advisory firms

Although at present the majority of M&A advice is provided by full-service investment banks,

recent years have seen a rise in the prominence of specialist M&A advisers, who only provide

M&A advice (and not financing). These companies are sometimes referred to as Transition

companies, assisting businesses often referred to as "companies in transition." To perform these

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Business valuation The five most common ways to valuate a business are asset valuation, historical earnings valuation, future maintainable earnings valuation, relative valuation (comparable company & comparable transactions), discounted cash flow (DCF) valuation Professionals who valuate businesses generally do not use just one of these methods but a combination of some of them, as well as possibly others that are not mentioned above, in order to obtain a more accurate value. The information in the balance sheet or income statement is obtained by one of three accounting measures: a Notice to Reader, a Review Engagement or an Audit. Accurate business valuation is one of the most important aspects of M&A as valuations like these will have a major impact on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest's sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size. [edit] Financing M&A Mergers are generally differentiated from acquisitions partly by the way in which they are financed and partly by the relative size of the companies. Various methods of financing an M&A deal exist: [edit] Cash Payment by cash. Su ...
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