M&A Final Flashcards
What year did US M&A Deals have the most deals from 2012-2021? And what type had the most?
2021, US Domestic
Where are the world’s biggest shipping hubs? Top 2?
Asia
Shanghai and Singapore
LA was on the list in 2005, no US companies on the list in 2021
Why the big in M&A deals in 2021?
Lower borrowing rate, more cash on hand, stocks exploded
What makes a “US” business?
Principle place of business is in the US or place of incorpration
ESG meaning
Environmental, Social and Governance
two discreet entities becoming one by “operation of law,” the one assumes all assets and liabilities of the two, a legal combination. Legal combo of two discrete economic entities in which only one survives and by ops of law assumes all the assets and liabilities of both entities
Merger
buying assets/liability or buy shares but two companies still remain (no merger law required). The purchase by one economic entity of all or a material part of the shares or assets of another entity where both entities survive the transaction
Acquisition
Why do Chinese companies want to list on US stock exchanges?
They can get higher share prices
What is not M&A?
“greenfield investment, most joint ventures, venture capital, real estate development.
Why M&A
acquire new technology
horizontal growth - expand new market/product
vertical integration (chevron, does discovery to retail and everything in between)
geographic growth/expansion
eliminate competitors
inversion for tax purposes
buying for distribution channels, acquire sales network
block a competitor
Rational for M&A
1+1 = 3
target entity is public, highly regulated, in M&A deal
Public M&A
target entity is private in M&A Deal
Private M&A
a defense strategy used by a target firm to prevent or discourage a potential hostile takeover by an acquiring company. Potential targets use this tactic in order to make them look less attractive to the potential acquirer.
Poison pill
M&A deal meant to bolster your business strategy
Strategic M&A
Goldman sacks wants to buy a cookie company, usually a private equity (“PE”) firm that has established a fund with committed capital to be used for acquisitions. These funds have defined criteria for the types of deals they will pursue. PE firms raise capital from high net worth individuals and institutions such as pension funds and endowments. These firms typically have a track record of successful deals which enables them to raise such capital.
Financial M&A
Why do so many companies incorporate in Delaware?
Delaware law has historically been very favorable for corporations and their board of directors
What are two things that are not in a confidentiality agreement?
no obligations to negotiate an agreement
no reps and warranties with respect to information provided
LOI - important part?
statement as to whether the letter or clauses are intended to be legally binding
Seller advantages in an asset sale (2)?
Seller disadvantages in an asset sale (3)?
Few reps and warranties
Seller can exclude any assets
May require consent from 3rd parties
Seller must procure releases of any security interests affecting the assets
Liabilities remain with the seller
Seller advantages (2) and disadvantages (3) of a share sale?
Better return for SH and less risk with ensuring clients, supplier and ftes will stay with the company
Company retains all liabilities, part of purchase price may need to be held back, places in escrow, seller may need to comply with restrictions in SH agreement
Key Points in Investment Banking Engagement Letter
Fee Arrangement Exclusivity Term Right of Termination & Tail Period Reimbursable Expense Covered Transactions
If you buy assets, you buy from the ___
If you buy shares, you buy from the _____
sub, parent
Who is liable for leans and environmental liabilities?
PIP - person in position, the buyer
when one company sells all its assets to another company, and who does this usually concern
bulk sale, Creditors are concerned because usually credit is issued based on assets. Required by law to notice of bulk sale.
A ______ is a contract in which an employee agrees not to solicit a company’s clients or customers, for his or her own benefit or for the benefit of a competitor, after leaving the company.
non-solicitation agreement
Preliminary documentation (3) in M&A?
investment banking engagement letter(seller)
confidential agreement/ nda – legally binding, do this before you offer
LOI/MOU (memorandum of understanding)/term sheet / head of agreement- it is legally binding but you have to say it is not legally binding if you want it not to be. Sometimes confidential agreement is withing LOI. At this point you may or may not have a price set.
Buyers Objective of M&A vs Sellers objective of M&A?
Full guaranty extending years after closing
As is, where is.
Two purposes of reps and warrenties?
Allocate risk between the parties
Provide a snapshot of the business
What are reps and warranties?
Statements from the SELLER to the buyer (mostly) about the state of the business.
Types of R/Ws
Legal, Title and Factual
Fancy word for you’ll step in take care of the issue (Pay if I’m sued, or defend)
Indemnity
Reps and Warranties are disproportionally more important to who?
the Buyer
4 Functions of acquisition agreement
Financial terms
Reps/Warranties
Actions needed to consummate transaction
Allocation of risk
What are qualifiers (substantive limitations) in R&W?
To the best of my knowledge, materiality, time limits
Seller’s weapons in from R/W?
Exclusive remedy through indemnification (no breach of contract or warrenty)
Timeframe
Threshold, collar, basket, cap
Actual knowledge
As you are aware, there are several different approaches to determine the fair market value of a business enterprise:
Market Value Approach, Cost Value and Income Value
RMB1.6 billion (approximately US$240 million at the current exchange rate of US$1=RMB6.65) and RMB2 billion (approximately US$300 million).
