15.4: Mergers and Aquisitions Flashcards
What are the three broad classifications of mergers and acquisitions?
- Horizontal merger: A merger in which two firms in the same industry combine.
- Vertical merger: A merger in which one firm acquires a supplier or another firm that is closer to its existing customers.
- Conglomerate merger: A merger in which two firms in unrelated businesses combine.
What is a horizontal merger?
A merger in which two firms in the same industry combine.
What is a vertical merger?
A merger in which one firm acquires a supplier or another firm that is closer to its existing customers.
What is a conglomerate merger?
A merger in which two firms in unrelated businesses combine.
What is a cross-border (international) M&A?
A merger or acquisition involving a Canadian and a foreign firm as either the acquiring or target company.
What is synergy in the context of M&A?
The value created from economies of integrating a target and acquiring company; the amount by which the value of the combined firm exceeds the sum value of the two individual firms.
How is synergy value calculated in M&A?
Synergy value (ΔV) = V_A-T - (V_A + V_T),
where V_A-T is the value of the post-merger firm,
V_A is the pre-merger value of the acquiring firm,
and V_T is the pre-merger value of the target firm.
What were some major characteristics of M&A activity in Canada during the 1980s?
- Characterized by leveraged buyouts and hostile takeovers.
- Many international M&As (e.g., Chrysler and Daimler-Benz, Seagram and Martell).
- Strategic motives were advanced, although the jury is still out on whether this was truly achieved.
What were some major characteristics of M&A activity in Canada during the 1990s?
- High technology/Internet M&As.
- Many stock-financed takeovers, fuelled by inflated stock prices.
- Many were unsuccessful and/or fell through as the Internet “bubble” burst.
What is the primary motive for a merger or acquisition?
The primary motive is the creation of synergy, which causes the value of the combined firm to exceed the sum value of the two individual firms.
What are some common value creation motivations for M&As?
- Economies of Scale
- Economies of Scope
- Complementary Strengths
- Efficiency Increases
- Financing Synergies
- Tax Benefits
- Strategic Realignments
What are economies of scale in the context of M&As?
Economies of scale arise whenever bigger is indeed better. Some potential benefits include reducing capacity, spreading fixed costs, and achieving geographic synergies.
What is an over-capacity M&A?
A merger or acquisition that occurs when an industry has too many firms operating in it.
What is a geographic roll-up?
The creation of a national firm from a series of regional ones.
What are economies of scope in the context of M&As?
Economies of scope occur when the combination of two activities reduces costs, typically resulting when two products share similarities in their production process.
