M&A Glossary

Question 1

Accretion

Answer 1

An improvement in per share metrics post-transaction (after issuing additional shares).

Question 2

Acquirer

Answer 2

The firm that is purchasing a company in an acquisition – the buyer.

Question 3

Acquisition

Answer 3

The purchasing company acquires more than 50% of the shares of the acquired company and both companies survive.

Question 4

Amalgamation/Consolidation

Answer 4

The joining of one or more companies into a new entity. None of the combining companies remains; a completely new legal entity is formed.

Question 5

Asset Deal

Answer 5

The acquirer purchases only the assets of the target company (not its shares).

Question 6

Backward Integration

Answer 6

A company acquires a target that produces the raw material or the accesories which are used by the acquirer. It intends to ensure an uninterrupted supply of high-quality raw materials at a fair price.

Question 7

Bootstrap Effect

Answer 7

Refers to a merger that does not provide true economic benefits to the acquirer company. Still, there is an increase in shareholders’ earnings per share as the stocks are exchanged in the merger, and after the merger, the shares combined are few.

Question 8

Conglomerate

Answer 8

A merger of companies with seemingly unrelated businesses.

Question 9

Economies of Scale

Answer 9

the cost advantage experienced by a firm when it increases its level of output

Question 10

Empire Building

Answer 10

One of the poor reasons to make a merger. Management decides to make a merger to increase the size of the company purely for the purpose of ego or prestige.

Question 11

Equity Issuance Fees

Answer 11

are the expenses a company incurs during the process of issuing equity securities. These costs may include legal fees, underwriting fees, registration fees, and other expenses related to the issuance process.

Question 12

Friendly Takeover

Answer 12

The board of directors and management of the target company approve of the takeover. They will advise the shareholders to accept the offer.

Question 13

Goodwill

Answer 13

The excess purchase price over and above the target’s net identifiable assets (after fair value adjustments).

Question 14

Synergies

Answer 14

Cost savings and revenue enhancements that are expected to be achieved in connection with a merger/acquisition.

Question 15

Subsidiary

Answer 15

Acquirer completely takes over the target but preserves the target’s brand for the sake of brand reputation or customer base

Question 16

Revenue Enhancements

Answer 16

Increases in revenue that are expected due to cross-selling, up-selling, pricing changes, etc.

Question 17

Restructuring Charges

Answer 17

Any fees or charges related to early debt repayments that are part of a restructuring.

Question 18

Intrinsic Value

Answer 18

The estimated value of a business using discounted cash flow analysis (often on a per share basis).

Question 19

Merger/Statutory

Answer 19

The purchasing company acquires all of the target company shares/assets; the target company ceases to exist (acquirer survives).