5. Mergers & Acquisition Flashcards
1
Q
M&A Definition
A
- Merger = Minimum of two corporations combine their resources and achieve a common goal
- Acquisition = One company acquires shares and control of another company
- International deals must be distinguished from domestic deals
2
Q
Strategic Motives for M&A
A
- Horizontal = Companies in the same industry -> Economies of Scale & learning
- Vertical = Companies in related industries -> Economies of Scope & Coordination
- Conglomerate = Companies in different industries -> New markets/ diversification
- Synergies within Corporation
- Categorization results in no consistent performance differences
3
Q
Other Motives for M&A
A
- Top-Management compensation depends more on firm size than profitability (Managerial)
- Psychological rewards -> CEO celebrity status/ reputation (Managerial)
- Imitation -> Fear of not participating in industry’s merger wave (Managerial)
- Stock market inefficiencies -> Acquire undervalued companies with overvalued equity (Financial)
- Tax savings -> Cross-border relocation to lower taxes (Financial)
- Financial re-engineering -> Reduce cost of capital (Financial)
4
Q
Mergers & Acquisition Waves
A
- Procyclical Waves -> High in expansion and low in recession
- Regulatory changes highly influence take-over market
- Waves end with steep decline of stock market prices and are followed by recession
- Expansion usually comes with rapid credit growth and stock market booms
5
Q
Do M&As create value?
A
- 70-90% failure rate of mergers and acquisition (2 Trill. Investment per year)
- Accounting profits analyses -> Diverse findings/ Difficult separating effect of M&A from other factors
- Shareholder return analyses -> Small increase in combined value of the two companies/ Wins almost entirely to shareholders of acquired companies/ Average negative returns for shareholder of acquiring companies
- Lack of consistent findigs reflects vast diversity of M&As and firms involved
6
Q
Bad Bidders
A
- Overpay deals
- Invest in unrelated industries
- Poor management incentives structures
- Lots of cash and poor investment opportunities
7
Q
Takeover Premium
A
- Bidders usually pay 20-30% more than shareholders thought the target was worth
- Takeover Premium = Value creation
8
Q
Post-Merger Integration- Pre Merger planning
A
- Nuts and bolts (Mutter und Schreiben) of success is integration -> Exact description of desired company necessary
- Takeover candidates must match strategic purpose of the deal (E.g. hold market position vs. company growth)
- If requirements are not met companies pay no good price and integrate in wrong way
9
Q
Video M&A Success factors
A
- Incremental value = Mergers needs to generate extra money to the organizations
- Be carefully towards advisors because their fee is based on the deal volume -> Risk of giving fake estimation in order to close deal quickly
- Revenue synergies = Deals driven by sales performance > Deals mostly driven by cost synergies
- Create an implantation plan early including who is involved in the process to build commitment
- Margin for error = if things deviate from original plan/ Be careful even deal might look good but
10
Q
Video Key Elements of a successful post-merger integration
A
- Leaders should set direction of integration as early as possible
- Drive out the value from the deal and finally put high effort in building the new organization
- Define objectives of the merger
- Manage integration separately from day-to-day business of the firm to maximize time spent on integration
- Once most value areas have been identified in the deal effective allocation of PMI teams to mirror those value drivers is possible
- Place Senior leaders visible and committed to employees to demonstrate that integration has real priority
- Consider both revenues and costs synergies
- Be totally unambiguous to what the costs and revenues synergies are/ Identified targets must be constantly revisited, refined and tracked
