Life Cycle Flashcards
Sell Side
What is the M&A life cycle
- Strategy; 2. Valuation; 3. Identify Buyers; 4. Diligence; 5. Bid, Negotiate, Structure; 6. Close
What to remember in developing a Selling Strategy
Maintaining Confidentiality; Minimizing Business Disruption; Maximizing the consideration to be received
Preemptive Sale/Negotiated Transaction
Focus on most likely buyer; Maximum Confidentiality; Minimum Business Disruption; Offer price may be lower end of expected range
Targeted Auction
Short list of buyers 2 - 5; Confidentiality maintained; Sense of competition enabled; Requires greater time commitment from senior management
Controlled Auction
Expanded range of logical buyers 3 - 12; High degree of control to manage confidentiality; Strong sense of competing bids; May discourage logical buyers; Potential for disruptive rumors about a sale; Expect higher price due to competition
Full Auction
Best chance to obtain highest offer; No longer a risk leaving out an interested buyer; Highest risk of business disruption; Strategy to be used when potential buyers are hard to identify
What is in an Offering Memorandum
Executive Summary of Business; Investment Highlights (investment thesis); Market Overview; Business overview (corporate, administrative, and operating); Financial information (historical and projected results); and Corporate matters (legal, HR, Environmental)
Identifying Buyers (Two Types)
Strategic Buyers - Operate in similar industries, tend to bid higher, expect to yield more benefits; Synergies happen via 1) cost savings - elimination of duplicative functions; 2) revenue enhancements; and 3) capital expenditure savings….Financial Buyers - PE/LBO firms that use debt and some equity from owners to pay for a company usually raised as pools of capital from institutional investors (insurance companies, pensions, endowments) or from wealthy individuals who will tolerate risk for higher returns. Cash flows from the acquired company are used to pay down debt.
Revlon Duties
Named after Revlon…upon a company initiating its own sale and the offers are all cash, the Board must make a good faith effort to obtain the highest value that can reasonably be attained.
Hart-Scott-Rodino Anti-Trust Improvement Act of 1976
Requires both buyer and seller to make certain filings with the government, usually right after the merger agreement is signed…usually a 30 day waiting period before the two sides consummate the transaction.
Fairness opinion
States that what the selling shareholders are receiving in exchange for giving up control of their company is financially “fair” given current conditions and range of assumptions…It is not an opinion about the future success of the combined company or timing of the transaction. Supported by valuation and analysis
Dual Process
When a company decides to pursue a M&A sales process while simultaneously pursuing other processes like an IPO
