Chapter 6- M&A Sale Process

Question 1

What might an investment banking team consider on the sell side?

Answer 1

The goals are to maximize value, execute efficiently, and minimize uncertainty. Therefore a banker must consider the targets needs, such as discretion and confidentiality needs, or timelines. Once this is defined the sale process best suiting the target is initialized.

Question 2

How are valuation techniques used in a sale process?

Answer 2

Valuation techniques are used to define a reasonable range in which the target can expect to receive. It may also be used in a fairness opinion.

Question 3

What are the benefits to an auction process

Answer 3

-The maximization of value due to multiple buyers putting forth their highest bid.
-Speedy process due to timelines in which bids must be in by.

Question 4

What are some of the drawbacks of the auction process?

Answer 4

Some drawbacks may include;
-Taint
-Decreased employee motivation (in case of public information)
-Info leakage

Question 5

What are targeted auctions?

Answer 5

A targeted auction is when a few potential buyers are approached to participate in auction.

Question 6

Why are strategic buyers preferred?

Answer 6

Due to the potential premium paid for the realization of synergies, in addition to this, financial risk may be lower (dependent on the state of capital markets) as well as a lower cost of capital.

Question 7

What must sell side advisors consider when performing due diligence?

Answer 7

Sell side advisors must understand potential buyer concerns, assumption drivers, and merits, in order to prepare effective marketing materials.