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Skills required to be an M&A analyst


Reliance Communications sells its assets to Reliance Jio Infocomm….

FlipKart buys stake in eBay India….

Vodafone to acquire Idea


Don’t we all get really excited on hearing these news?  Most of us start following the happenings right from the announcement of these acquisitions, right?

Mergers & Acquisitions (M&A) are some of the most interesting as well as important events in the corporate landscape. A lot goes into the process of mergers and acquisitions. There is a dedicated team working in Investment Banks and advisory firms who solely handle M&A activities. This team comprises Analysts, Associates and is headed by a Director/ Principle. Starting off as an M&A Analyst is like a dream for many. It is the stepping stone to a career that promises a lot of recognition, gratification and yes, financial rewards too!

A snapshot below shows the range of annual income of M&A analysts in leading MNCs in India.

                                      naukri.com (2016)

What does an M&A analyst do?

There are basically two types of M&A analysts, Sell-side and Buy-side. The sell-side analyst pitches the company to prospective buyers, while a buy-side analyst searches well-performing companies for acquisition. An M&A analyst performs three major tasks:

  • Targeting companies:Identifying potential target companies for mergers based on in-depth research and analysis. The process of finding prospective targets can be done through various channels such as primary research, secondary research, networking, corporate events, database search, employee referrals, online advertisement etc.
  • Competition assessment:In this role an M&A Analyst collects huge amount of data on prospective businesses and companies in particular. He performs a typical SWOT analysis, and studies the nuances of the competitive landscape within the pre-determined area of consideration.
  • Liasoning:Once the prospective target/ targets are identified, the M&A Analyst proceeds to contact them and arranges appointments of those prospective businesses with the senior leadership.
  • Due Diligence:Due Diligence is one of the most important tasks of an M&A analyst. This is sort of a feasibility assessment. It is the process of appraising and sanctioning the financial and operational position of the target company. This implies performing operational, financial and legal risk assessments of a company.

Needless to say this is a niche profile and demands a combination of specialized skills. Let us look at each of these skills in details:

(1) Financial Modeling

One cannot identify which company is suitable for acquisition unless we can project its financial performance and do a proper risk-benefit analysis. An M&A model is a specialized model which assesses the value of the combined business after merger vis-à-vis the individual companies. M&A analyst has to look at similar companies within the industry and assess comparable multiples. Hence, the analyst must be adept at making assumptions which is as precise as possible, making projections keeping the market situations of both the companies and perform an accretion/ dilution analysis.

(2) Knowledge of Valuation Techniques 

One of the crucial tasks of an M&A analyst is to determine the Purchase Price of the target company, or what premium needs to be paid with reference to the valuation of the company. For this, the analyst must have an eye for detail and ascertain what the most appropriate way to do this is. One of the most widely used methods is to look at the premium paid for ownership in comparable transactions that have happened recently. Some of the other methods are Comparable Company Analysis or Discounted Cash Flow Analysis. Hence, the analyst needs to possess knowledge of various valuation tools and a strong sense of judgment.

(3) Making error-free pitch books

Buy-side and Sell-Side M&A pitch books are usually quite lengthy and one of the toughest. Making error-free pitch books is an art wherein one must see that the information regarding potential buyer/ seller, valuation graph and market positioning is presented in a form that is visually appealing as well as informative. The analyst also needs to have good graphical representation skills to enhance the value of the pitch book.

(4) Accounting skills

Mergers and acquisitions accounting treatments are usually complex as they involve deals worth crores of money. The capital structure of the deals have to be finalized and the tax treatment of the transactions also have to be accounted for. Apart for CFAs, Chartered Accountants, CIMA as well as the ACCA professionals are also highly suited for the role of M&A analysts.

(5) Core Industry Knowledge

Mergers and Acquisition is very sector/ industry specific. Hence, an M&A analyst should be well-versed with the developments in his particular industry. He needs to have an analytical mind set regarding the factors that impact the industry. Which companies are in mature stages, which ones are in sunrise and which ones are going through stabilization, all need to be at his fingertips. This calls for research skills, awareness and foresightedness.

(6) Updated on global business landscape

M &A is not just limited to the domestic arena. Transactions happen across the borders these days. Therefore deep understanding about the global economy and corporate landscape is a critical element. Not just this, a good M&A analyst needs to possess a deep understanding of the operation of business in the various countries and the process of buying / selling activity there.

(7) Knowledge of corporate law and merger process

Buying another company or merging with it to form a new entity is an event which has to comply with the various tenets of corporate laws. An M&A analyst needs to possess good understanding of the official process of mergers along with its legal implications and regulatory rules. The structure of the deal and the due diligence also form a part of the legal issues. One needs to have in depth knowledge about the treatment of intellectual property, existing litigation issues of the companies and country specific compliance norms.

Conclusion

Consolidation is a need in this age of fiercely competitive corporate landscape. This allows for better control over a particular industry and pricing. So it is quite evident that mergers and acquisitions will continue to happen at an increased pace in both domestic and global arena. There is immense demand for M&A analysts in investment banking companies and boutique advisory firms today. So what are you waiting for? Acquire the required skills, sharpen your business acumen, follow the global developments, take lead and get ready to rule the roost as a successful M&A analyst!

 

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