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Strategic Case Study > F3 - 9. Mergers and Acquisitions > Flashcards

F3 - 9. Mergers and Acquisitions Flashcards

1
Q

What are the 4 main types of M&A?

A
  1. Takeover (acquisition)
  2. Merger (mutual)
  3. Reverse takeover (private buys public)
  4. Vertical integration (in supply chain)
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2
Q

What are the 5 main reasons for an M&A?

A
  1. Improved market reach/power
  2. Eliminate a competitor
  3. Asset strip
  4. Use surplus cash
  5. Gain synergies
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3
Q

What are the 4 types of operating synergies?

A
  1. Economies of scale
  2. Avoiding duplication
  3. Eliminate inefficiencies in target
  4. Vertical integration (gain strengths)
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4
Q

What are the 3 main types of financial synergies?

A
  1. Financial (easier to raise capital)
  2. Tax (group loss, but may WHT)
  3. Reduced risk (diversification)
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5
Q

What are the 3 other types of synergy from M&A?

A
  1. Speed
  2. Market power
  3. Improved knowledge/technology
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6
Q

What are the 2 main blockers of achieving synergies from M&A?

A
  1. Clashing cultures
  2. Inability to merge systems
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7
Q

What are the pros (1) and cons (2) of cash consideration for a buyer?

A

+ Better price
- Liquidity
- Additional finance needed

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8
Q

What are the pros (1) and cons (2) of cash consideration for a seller?

A

+ Certain amount
- Immediate tax (capital gain) issues
- No ongoing stake

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9
Q

What are the pros (3) and cons (1) of share consideration for a buyer?

A

+ Preserves liquidity
+ Reduces gearing
+ Ensures ongoing co-operation
- Dilution of control + EPS for current shareholders

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10
Q

What are the pros (1) and cons (2) of share consideration for a seller?

A

+ No immediate tax issues (deferred gain)
- Uncertain value received
- Transaction costs to sell

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11
Q

What are the pros (2) and cons (2) of debt consideration for a buyer?

A

+ Avoids dilution of control
+ Preserves liquidity
- Increases gearing
- Increases interest payments

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12
Q

What are the pros (1) and cons (1) of debt consideration for a seller?

A

+ Lower risk than shares
- Lower return than equity

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13
Q

What are the pros (2) and cons (1) of earn-out arrangements for a buyer?

A

+ Continued cooperation
+ Reduced risk
- Could end up paying more under high performance

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14
Q

What are the pros (1) and cons (1) of earn-out arrangements for a seller?

A

+ Can maximise what they receive
- Uncertainty

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15
Q

What are the bounds for an initial acquisition offer?

A

Above current share price, below [Market Value A+B - Market Value A]

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16
Q

What are the 2 methods for valuing a post M&A joint entity?

A
  1. MVa+b = MVa + MVb + PV of synergies
  2. MVa+b = PE ratio of a x combined sustainable earnings
  3. MVa+b = PV of future combined free cash flows (which cost of capital?)
17
Q

How do you quantify the impact on existing shareholders of an M&A?

A

(New MV / new number of shares) - old share price x holding

18
Q

What are the 2 areas of acquisitions that regulation focuses on?

A
  1. Potential market power
  2. Behaviour during bid process (fair, transparent, open to shareholders)
19
Q

What are the 4 defence tactics that can be adopted prior to a bid?

A
  1. Communication with shareholders
  2. Poison pill (rights at deep discount)
  3. Shark repellent (alter constitution to super majority)
  4. Asset revaluation
20
Q

What are the 4 defence tactics that can be adopted post bid?

A
  1. Find white knight
  2. Refer to competition authorities
  3. Prompt response (reject in 14 days)
  4. Pacman defence (counterbid)
21
Q

What are Drucker’s 5 golden rules for post M&A integration?

A
  1. Share common core of unity (tech, market, finances)
  2. Consider 2 way offerings
  3. Treat products and customers of target with respect
  4. Provide top management with skills
  5. Cross company promotions
22
Q

What are the 5 key post M&A value enhancement strategies?

A
  1. Review for cost cuttings, staffing and synergies
  2. Review redundant assets and resources
  3. Good communication to key stakeholders
  4. Identify economies of scale
  5. Align corporate objectives
23
Q

What will be the priority of shareholders in the parent in an M&A?

A

Getting maximum value for money

24
Q

What will be the priority of shareholders of the target in an M&A?

A

Offered a decent price and in appropriate form of consideration

25
Q

What will be the priority of customers and suppliers post M&A?

A

Continuing relationship/quality of product and service

26
Q

What will be the priority of employees post M&A?

A

Guaranteed continued employment and prosepects

27
Q

What will be the priority of management of both businesses post M&A?

A

That they are able to work effectively together

Strategic Case Study (27 decks)

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