DUE DILIGENCE AND FINANCIAL STATEMENT ANALYSIS: KEY FACTORS IN MERGERS AND ACQUISITIONS - LESSONS FROM BANK OF AMERICA'S ACQUISITION OF MERRILL LYNCH

Abstract

This case study analyzes the Bank of America's acquisition of Merrill Lynch in 2008 and the issues that arose due to insufficient due diligence and financial statement analysis. The acquisition led to huge losses for the bank, resulting in a government bailout of $20 billion. The document discusses the events leading up to the acquisition, the post-acquisition issues and the examination of Merrill Lynch's accounting policies and valuation issues. The case provides an opportunity for students to apply acquisition principles in a practical context, evaluate the advantages and disadvantages of the acquisition, and learn the importance of thorough financial statement analysis and due diligence in merger and acquisition decision-making processes. The document also includes a table of US banks and their tangible book/asset ratios, highlighting the potential risks involved in mergers and acquisitions