In our M&A analysis, we have estimated an EPS accretion of about 3%.

Now, even though the deal is EPS accretive, there might be significant risks associated with the transaction. So in our last task, we're being asked to identify any of these risks or any qualitative considerations that might impact this transaction.

Now here we provide about eight different potential qualitative considerations to discuss. So let's start with the first one.

Both the target and the acquirer provide equipment and services to the US armed forces.

This means that the government might be heavily involved in the approval or clearance of this transaction.

The target is a large competitor of the acquirer.

So this deal has the potential to breach antitrust laws.

So we expect an investigation by the FTC and the DOJ to be part of this process.

Deal synergies are expected to come from both revenue and cost synergies. If you recall in the model, we assumed a 5% synergies relative to revenues. That 5% incorporated revenue synergies, which could be high risk synergies, meaning that there might not be able to be realized within the estimated period.

A more conservative approach would be to lower the synergies to incorporate only synergies coming from cost reductions.

Now, the target has unique assets, which typically attracts a higher price and a higher acquisition premium. Now, this is good news for the target, but it makes the deal potentially more expensive for the acquirer.

The target also has a large pension liability. Now, in the challenge, we ask you to ignore this item. However, in a real acquisition, this pension liability could be very expensive to fund and it could break this deal. Another consideration is related to labor unions. The defense workforce is typically unionized, and this could create a challenge if the acquirer is expecting to create synergies by reducing the headcount or the workforce.

ESG risks are another issue in this sector as both companies produce offensive weapons, and this could increase the costs of raising financing or funding for this deal.

Finally, top secret military programs and contracts can impact the due diligence process, increasing the time it takes to complete the deal, and of course, making the transaction more expensive. So as you can see, these are very complex acquisition with both regulatory and logistical challenges. Now, these challenges will of course, increase the risk of the deal, and it will make it more likely that it will be unsuccessful due to higher costs and a higher time to completion.