M&A Part 2 Flashcards
What is the difference between a merger and an acquisition?
A merger is when two companies of similar size come together as equals to form a new, single entity, often sharing control and combining resources under a unified identity. In contrast, an acquisition is when one company takes over another, with the acquiring company absorbing or controlling the target, which may lose its original identity.
What is the general rule of thumb for determining the accretion/dilution impact for all-stock transactions?
When a buyer with a higher price-to-earnings (P/E) ratio acquires a company with a lower P/E ratio, the deal is considered accretive because it boosts the buyer’s earnings per share (EPS). However, if the buyer’s P/E is lower than the target’s, the deal is dilutive since it reduces the buyer’s EPS.
Which deal structure is more likely to result in a higher valuation: an all-cash or all-stock deal?
Generally, an all-stock valuation tends to result in a lower valuation compared to an all-cash because the target’s shareholders are able to participate in the potential of the holding shares in the new entity
Which type of synergies are most likely to be realized: revenue synergies or cost synergies?
Cost Synergies
What is the difference between vertical integration and horizontal integration
Vertical: two companies with different functions in the value chain
Horizontal: the companies with the same market
How is forward integration different from backward integration
Foward: the company purchased works near the final phases of the value chain
Backward: the company purchased works as a supplier or manufacturer of parts or components of a product
What is purchase price allocation (PPA)?
A practice in which the acquirer allocates the purchase price into the assets and liabilities of the target company acquired
Contrast asset sales vs. stock sales vs. 338(h)(10) election.
Asset Sales - the buyer owns the company because everything that makes the seller’s equity hold belongs now to the buyer
Stock Sales - The buyer owns shares
338(h)(10) Election - Acquisition of corporate subsidiaries. Legally treated as a stock sale by treated as an asset sale for tax purposes
