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FNCE 465: Mergers and Acquisition > Intro to Merger and Acquisition > Flashcards

Intro to Merger and Acquisition Flashcards

1
Q

Mergers and Acquistion (1)

A
  • consolidation of companies or assets

- decision that the firm’s assets or ability to generate profit

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2
Q

Mergers (1)

A
  • combining two or more companies, generally by offering shareholders of one company securities in the acquiring company in exchange for surrender of their stocks
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3
Q

Acquisition (1)

A
  • one company purchases an interest in the acquired; asset or share purchase
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4
Q

Divestiture (1)

A
  • sale of asset or business unit
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5
Q

Two disciplines of finance (4)

A
  • what is something worth? valuation (cash flow, risk analysis)
  • how will we pay for it? Deal structuring, capital raising (hedge)
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6
Q

Basic Framework (6)

A
  1. Strategize
    - select target, screen, approach
  2. Execute
    - engage, negotiate structure, conduct DD
  3. Realize
    - seek approval
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7
Q

Multi-Disciplinary approach (8)

A
  • legal and regulatory
  • strategy
  • tax and treasury
  • valuation
  • operation
  • negotiation
  • HR
  • accounting
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8
Q

Who’s involved in merger and acquisition (8)

A
  • senior management
  • investment banks
  • corporate banks
  • internal and external consultant
  • legal
  • accounting
  • tax
  • business development
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9
Q

M & A stakeholders (7)

A
  • stockholders
  • debtholders
  • employee
  • union
  • customers
  • competitors
  • suppliers
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10
Q

Drivers of M & A (9)

A
  • technological changes
  • economies of scale
  • globalization, free trade
  • change in industrial organization
  • new industries
  • deregulation and regulation
  • economic and financial prosperity and growth
  • negative trend in industries
  • high/low equity valuation
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11
Q

Horizontal mergers (4)

A
  • same industry
  • economies of scales
  • require regulatory approval
  • roll up strategy: consolidate number of smaller companies
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12
Q

Vertical mergers (5)

A
  • same industry, different stage of value chain
  • security of supply
  • cost saving
  • transfer pricing
  • critical components
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13
Q

Conglomerate product extension (1)

A
  • same market but new product
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14
Q

Conglomerate market extension (1)

A
  • similar product but separate market
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15
Q

Conglomerate unrelated industries (3)

A
  • investment, financial, managerial
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16
Q

First merger movement (1)

A
  • 1895- 1904
17
Q

Second merger movement (3)

A
  • 1922-1929
  • transportation, communication, and merchandising
  • vertical mergers and product extension
18
Q

Conglomerate merger (2)

A
  • defensive diversification

- 1960

19
Q

Deal Decade (3)

A
  • break up diversified firms
  • financial innovation
  • 1981-1989
20
Q

Strategic merger (2)

A
  • 1992-2000

- globalization, deregulation

21
Q

2000+ (3)

A
  • lower interest rate
  • consolidation
  • private equity
22
Q

Common characteristics of merger movement- environmental factors (6)

A
  • period of high economic growth
  • favourable stock price and financial conditions
  • technological changes (telephones)
  • input price volatility (oil industry)
  • legal and regulatory changes (deregulation)
  • financing innovation (junk bond)
23
Q

Long term strategy (4)

A
  • vision
  • culture
  • plans
  • policies and procedures
24
Q

Short term strategy (3)

A
  • tactics
  • decisions
  • actions
25
Q

Nature of strategy (5)

A
  • execute team decision
  • organization must execute to fit strategy
  • success changes- dynamic
  • accelerator: suppliers’ impact by decline in sales
  • sale to capacity relationship
26
Q

Corporate strategy (4)

A
  • focus on entire enterprise
  • type of business that should be pursued
  • resource allocation across business units
  • how an enterprise is going to allocate resources, create synergies, and compete on broader scale
27
Q

Business strategy (4)

A
  • related to business unit
  • short term
  • tactical and strategic
  • how to compete successful in specific business
28
Q

Essential strategic planning process elements (6)

A
  • assessment of change in organization environment
  • evaluation of company capabilities and limitation
  • assessment of expectation of stakeholders
  • analysis of company, competitors, industry, and economic factors
  • formulation of mission, goals, and policies for master strategy
  • development of sensitivity to critical external environmental changes
29
Q

Steps for planning process (7)

A
  • formulation of internal organizational performance measurement
  • formulation of long range strategy programs
  • formulation of mid-range program and short term plans
  • organization, funding and implementing all preceding elements
  • information flow and feedback system for continued repetition of essential elements for adjustment and change at each stage
  • review and evaluation
30
Q

Strategy Methodologies (19)

A
  • SWOT analysis
  • top down and bottom up: do the business segment try and meet forecast or do they generate forecast
  • computer model: complexity and inter-relationship
  • competitive analysis: porter 5 forces
  • synergy
  • logical incrementalism: small steps to create major change
  • muddling through: what policy alternatives are incrementally different than existing policies
  • comparative histories
  • delphi techniques: asking informed individuals non directly (survey), create report, then ask same idea
  • discussion group technique
  • adaptive process
  • environmental scanning
  • discontinuities
  • brainstorming: delphi is anonymous
  • game theory: logical assessment of competitors
  • game playing: assign roles and simulate alternatives
31
Q

Analytical framework (18)

A
  • product life cycle
  • learning curve
  • cost leadership
  • product differentiation
  • value chain analysis
  • niche opportunities
  • product breadth
  • profitability correlation
  • market share
  • product quality
  • technological leadership
  • focus matrix
  • relatedness matrix
  • growth share
  • attractiveness matrix
  • global matrix
  • resource base views
32
Q

Boston consulting approach (4)

A
  • cost fall at a geometric rate with cumulative production
  • development, growth, maturity, decline
  • market growth, and share: star, cash cow, question market, dog
  • CFROI = cash flow / market value of capital employed
33
Q

Porter approach (5)

A
  • threat new entrant, threat of substitute product, bargaining power of customers, bargaining power of suppliers, competitors
34
Q

Adaptive process (1)

A
  • uncertainty
35
Q

Strategy in practice (10)

A
  • goal setting
  • economic, industry, environmental analysis
  • competitive analysis
  • valuation
  • sensitivity analysis
  • capabilities analysis
  • discussion
  • resources allocation and risk management
  • feedback
  • reassessment, reaction, and adjustment
36
Q

Strategy and structure (4)

A
  • U Form: small organization
  • H Form: division are relatively independent
  • M Form: partial autonomy but division share central function
  • Matrix Form
37
Q

Sensible motive (7)

A
  • economies of scales: synergies
  • vertical integration: eliminate customer/supplier
  • risk reduction: growth, R & D
  • complementary resources: product extension, geographical roll up
  • unused tax losses
  • surplus funds
  • eliminating inefficiencies
38
Q

Dubious (4)

A
  • diversification
  • earning per share
  • lower financing cost
  • management preference and hubris
39
Q

Specific strategies (4)

A
  • LBO: acquisition of another company using a significant amount of borrow money to meet cost of acquisition
  • MBO: transaction where a company management team purchases the asset and operation of the business they manage
  • spin out of asset
  • overcapacity M&A: eliminate capacity and gain market share or operating leverage

FNCE 465: Mergers and Acquisition (7 decks)

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