At times, people know the outcome of the analysis before the analysts have started the evaluation process, or even completed their model. They want a certain result – a result in line with their personal preference.
In the context of M&A, such expectation to hit a certain mark can lead to grave consequences, yet still it is not unheard of. Evaluation methods use parameters, and parameters can be changed – sometimes they get adjusted, tweaked and changed until the arithmetical result fits the bill. The downside obviously is that the parameters may not be reflective of reality, risks are being ignored, and sensitivities are left unconsidered in the decision process.
Therefore, an independent check of the model and the applied assumptions is helpful. Other prevention strategies include:
- Do not change assumptions without substantial reasoning.
- Apply the 80/20 rule: Calculate the most important synergies only, and ignore the rest.
- Be sure to have the resource to implement any planned initiatives, in terms of manpower, competence and funding.