Brief Advisory Flashcards
What are the <b>TWO</b> main advisory services?
<b>1️⃣ M&A</b>
<b>2️⃣ Debt restructuring</b>
Why do investment banks provide advisory like M&A service?
Can be <b>profitable</b> because M&A deal <b>occur multiple times</b> while IPO is a one off event.
An Acquisition
When a company buys another company’s shares or assets
A Merger
When the <b>buying company</b> absorbs the <b>target company</b>. The target company ceases to 停止 exist after the transaction. It is <b>merged into</b> the buying company.
Consideration
Buyer company can offer a compensation to the target company shareholders in several ways:
<b>1️⃣ Cash compensation</b>
<b>2️⃣ Stock package of the new entity</b>
<b>3️⃣ Combination of both</b>
The importance of M&A deals for a company
Sometimes it is cheaper to acquire something that has been already created rather than trying to generate it internally.
Savings, efficiencies, opportunities.
Why do companies need help when acquiring other companies?
1️⃣ Investment bankers have <b>deep industry knowledge</b>. Provide valuable M&A insights to their clients.
2️⃣ Companies do not have the expertise. Help with <b>finding bidders or targets</b>.
3️⃣ M&A specific know-how: <b>Communication</b> with bidders/targets, acquisition of <b>financial information</b>.
What are the <b>TWO</b> possible roles that investment bankers can have?
<b>1️⃣ Buy-side</b> - hired by buying company
<b>2️⃣ Sell-side</b> - hired by selling company.
All banks <b>prefer</b> to be on the <b>sell side</b> as a transaction is likely and commissions are almost guaranteed.
Tasks for Sell-side bankers
1️⃣ Find a large number <b>bidders</b>.
2️⃣ Prepare the company for all <b>questions asked by buyers</b>.
3️⃣ Make a <b>valuation of the business</b> and suggest a <b>minimum bidding price</b>.
4️⃣ <b>Coordinate the entire sales process</b>
Tasks for Buy-side bankers
1️⃣ Provide <b>strategic advice</b> on whether the target company is attractive and would fit nicely with the buyers existing business.
2️⃣ Provide <b>valuation of the target business</b>.
3️⃣ <b>Estimate synergies</b>
Restructuring services
These services are necessary when a <b>firm cannot serve its debt</b> and is in danger of going bankrupt.
What are the <b>TWO</b> main alternatives if a firm cannot serve its debt?
<b>1️⃣ Private workout</b>: bankers <b>negotiate with lenders</b> and prepare a <b>recovery business plan</b>. Ensure the company will <b>have sufficient cash</b> in the <b>first 12 months</b> of the restructuring plan.
Most lenders prefer a Private Workout because:
<b>✅ Faster results</b>
<b>✅ Higher recovery rate</b>
<b>2️⃣ Bankruptcy procedure</b>
Definition of a Distressed Company
A company that doesn’t have sufficient cash for its operating activities.
