Corporate Restructuring Flashcards
types of corporate restructurings
Investment
Divestment
Restructuring
Investment
actions that increase the size of the company or the scope of its operations, thereby increasing revenue and perhaps revenue growth (external or inorganic - growth through investment actions designed to increase revenues and improve margins, not R&D or CAPEX)
Has 3 types: 1) equity investment 2) joint venture 3) acquisition
Divestment
actions that reduce a company’s size or scope, typically by shedding slower-growing, lower-profitability, or higher-risk operations to improve the issuer’s overall financial performance
Motivations are often focus, valuation, liquidity, and regulatory requirements
Has 2 main types: 1) divestiture 2) spin off
Restructuring
changes that do not alter the size or scope of the issuer but improve its cost and financing structure with the intention to increase growth, improve profitability, or reduce risks
Motivations are often opportunistic improvement and forced improvement
Synergy
The combination of two companies being more valuable than the sum of the parts. Generally, synergies take the form of lower costs (“cost synergies”) or increased revenues (“revenue synergies”) through combinations that generate lower costs or higher revenues, respectively
Industry shocks
Unexpected changes to an industry from regulations or the legal environment, technology, or changes in the growth rate of the industry.
Equity investment
A company purchasing another company’s equity but less than 50% of its shares. The two companies maintain their independence, but the investor company has investment exposure to the investee and, in some cases depending on the size of the investment, can have representation on the investee’s board of directors to influence operations.
Joint venture
Two or more companies form and control a new, separate company to achieve a business objective. Each participant contributes assets, employees, know-how, or other resources to the joint venture company. The participants maintain their independence otherwise and continue to do business apart from the joint venture, but they share in the joint venture’s profits or losses.
Acquisition
When one company, the acquirer, purchases from the seller most or all of another company’s (the target) shares to gain control of either an entire company, a segment of another company, or a specific group of assets in exchange for cash, stock, or the assumption of liabilities, alone or in combination. Once an acquisition is complete, the acquirer and target merge into a single entity and consolidate management, operations, and resources.
Conglomerate discounts
When an issuer is trading at a valuation lower than the sum of its parts, which is generally the result of diseconomies of scale or scope or the result of the capital markets having overlooked the business and its prospects.
Divestiture
When a seller sells a company, segment of a company, or group of assets to an acquirer. Once complete, control of the target is transferred to the acquirer.
Spin-off
When a company separates a distinct part of its business into a new, independent company. The term is used to describe both the transaction and the separated component, while the company that conducts the transaction and formerly owned the spin off is known as the parent.
Franchising
An owner of an asset and associated intellectual property divests the asset and licenses intellectual property to a third-party operator (franchisee) in exchange for royalties. Franchisees operate under the constraints of a franchise agreement.
Example of opportunistic improvement
Cost restructuring
Actions to reduce costs by improving operational efficiency and profitability, often to raise margins to a historical level or to those of comparable industry peers.
Example of forced improvement
Could be classified into two: 1) outsourcing 2) offshoring
Outsourcing
Shifting internal business services to a subcontractor that can offer services at lower costs by scaling to serve many clients
