Ch9-Growth & restructuring of the company Flashcards
Under mergers and acquisitions, what is the compatibility of the companies?
this means how companies will complement each other and this depends on the type of industry that they are both in.
what is synergy?
after a decision of whether to merge or acquire the target company has been made, there still needs to be a proper assessment conducted, what does the evaluation include?
it is how well the companies can co-exist after merging.
they have to consider financial information(to check the financial performance, to also check what is published is correlated to what is not published. check the capital structure, and employee and management information.
the acquirer will try to estimate the net gain of the acquirer’s shareholders, that is the met present value of the gains less the losses from the acquisition.
Under mergers and acquisitions, what are the methods of evaluation? under each evaluation give a brief explanation of what it is about.
1) Resources- can be physical, human, finance, and intellectual property(can be delivery companies)
2) Costs- here we try to reduce the transaction costs. it can be economies of scale, variability of raw materials, and the ability to produce and sell in another country and thereby avoid trade barriers.
3) Market- market industry, market consumers(can be described by demands of the consumers), and market location(where the business is located affects how it operates depending on the industry they are in.
4) Security-trying to secure the resources of the company. There needs to be certain to reduce the transaction costs. Reduce competition by horizontal integration. Gain control of supplies by vertical integration.
What are the steps taken into acquisition?
Describe each of them.
1) regulation and legislation- check if the regulations prevent them from taking over the company. examine all the regulations available.
2) Shareholders’ approval-financial impact it has on the shareholders, will the acquisition be profitable, how will it affect their shareholding, it can affect the confidence of the shareholders
3) Raising finance- how can they raise the funds to purchase the target
4) Method of payment- will it be through cash, loan stock or shares exchange? this depends capital structure of the acquirer
5) Make an offer- The offer made can be friendly or hostile
6) Discussions and the approvals- investigations and checks of financial records, tax records, and senior management will be performed. This is the case of a friendly takeover.
7) Hostile takeovers- the target’s board of directors tries to prevent the takeover(this can be by informing the shareholders, employees, and managers about the motives of the acquirer.
Leveraged Buyouts.
the steps are similar to those of the acquisition, except that the private company raises funds in the form of debt finance and pays the target company cash.
the LBO becomes a private company and ceases to trade on the open market.
the motive for LBOs is profit, tax relief of debt finance(because interest is tax-deductible), and installation of a new management team that reduces the costs/expenses and capital spending.
