lecture 3 part 1 Flashcards
what is an IPO
when a company first issues its initial set of common shares to the public
what are the costs associated with an IPO
spread + expenses + underpricing
what is synergy
the value created from the combination of two two firms and the value of the combined firm will exceed the value of the sum of the two firms value
what are the 5 types of synergies
operating synergy, financial synergy, operating efficiency, tax benefits, strategic reallignments
what is the main part of operating synergy and how does it happen
the main part is growth and comes from economies of scale, economies of scope, complementary strengths
what is main part the of economies of scope and how can it occur
growing the same business, which can be done by reducing capacities, spreading fixed costs, geographic synergies
what is reducing capacaties
too many companies in industry
what is spreading fixed costs
spreading out fixed costs over a larger volume
what is geographic synergies
making one national firm with the combination of many regional firms
what is economies of scope and give an example
expanding business type for example wwe creating ufc
what is complementary strengths
filling a weakness
give an example of filling a weakness
if a small firm who can produce a good products merges with a large firm who can distribute well
what is the main part of financial synergies and how can that be done
main part is access to funding and can come from reduced cashflow variability, increase debt capacity, reduction in average issuing costs and fewer information problems
what does reduced cashflow variability mean
diversity in business reduces the risk in earning revenue
what does increase debt capacity mean
less risk due to size means i can borrow more money
