Why should a target company be valued as a standalone busine

Why should a target company be valued as a stand-alone business? Give examples of the types of adjustments that might have to be made if the target is part of a larger company. This is the textbook in which I\'m using Mergers, Acquisitions, and Other Restructuring Activities, 7th Edition, ISBN-13 ISBN: 9780123854872, Academic Press, DePamphilis

Solution

Target company should be valued as a stand-alone business for the acquirer to know the minimum value to be paid for the acquisition of the company.

If the target is part of a larger company than various adjustments of cost or revenue associated with the target company or acquirer company will have to be done. If such adjustments are not done it will result in the overstatement of the value of target company. These costs include legal, audit, benefits or other treasury functions which might have been provided at lesser rate by the parent company. Also, intercompany transfer should be restated correctly to reflect the value based on the current market price.