In the textbook, we discuss how to value an acquisition. But what are the some considerations in the valuation of the target? The recent acquisition of Wells Fargo's retirement and trust business by Principal can give you some insight. For example, Principal had to consider whether recent problems at Wells Fargo had extended into the retirement area. Additionally, future revenues from the acquisition depend on how many of the current customers stay when the acquisition is complete. In this case, a payment will be made in two years contingent on the percentage of current customers of Wells Fargo remain at that time.
Finally, an important consideration is the cultural fit between the two companies. The value of the synergies, as well as the continuation of the current cash flows of the target company into the future, often depend on culture. If employees of the target company are thrust into a new culture, it may lead to an exodus of employees, resulting in a decrease in ongoing cash flows as well as reducing expected synergies. A culture clash was allegedly a major cause of why the AOL-Time Warner mergerflopped so badly.
