Mergers & Acquisitions Flashcards
Can you explain the basic steps in M&A transactions?
- Develop strategy
- set strategic goals and objectives (why they want to acquire another company); - Valuation & Due Diligence
- financials, operations, legal matters; market position of the target company. - Deal structuring & negotiations.
- negotiate the terms of the deal.
- purchase price of the target company; financing methods to acquire. - Financing
- may involve raising equity capital, issuing bonds, securing loans, etc. - Getting approvals
- from regulatory and shareholders. - Closing the deal
- i.e: transferring ownership, payment of the purchase price, execution of the necessary legal documents. - Integration
- Post closing; aligning business processes, systems and culture.
Why are you interested in M&A?
- I am interested with this particular corporate strategy as it is considered the most complex business activities.
- complex transactions; because each M&A deal is unique in its own way; varying valuations; unique cultural integration.
- cross-industry collaborations. the opportunity to learn about various sectors, exposure of expertise from different sectors. Enriches the analytical process & deal strategies.
Types of Mergers & Acquisitions
- Horizontal Merger
- Companies that operate in the same industry, merge.
- Purpose: to eliminate competitors, to achieve economies of scales. - Vertical Merger
- When two companies of different position in the stage of production, merge.
- Purpose: to improve efficiency, to reduce costs.
- eg: eBay provides a platform that allows people to sell items, while PayPal allows buyers to pay for these items. - Conglomerate Merger
- two companies, from two distinct industry, with no related business activity, merge.
- purpose: to diversify business activities, to expand into new market.
Examples of M&A transactions
- eBay & paypal
- eBay provides a platform that allows people to sell items, while PayPal allows buyers to pay for these items. (vertical) - Amazon (online) & Whole Foods (brick & mortar) (conglomerate)
- Exxon and Mobil = ExxonMobil (horizontal)
Valuation methods commonly used in M&A?
- DCF Analysis
- discount all projected future cashflows to present; NPV
- provide a long-term view of the cash flow projection of a company + detailed insights. - Company Comparable Analysis
- for similarly publicly traded companies
- Price to Earnings ratio (P/E Ratio)
- Enterprise Value (EV) / EBITDA - Market Capitalization
=> current stock price * total outstanding shares = - Asset-Based Valuations
=> fair value of total assets over its total liabilities = Net Asset Value
Explain Leverage Buyout (LBO)
- Where a company finances a portion of the targeted purchase price with debts (remaining with cash, stocks etc), based on the company’s ability to generate future cash flows for servicing the debts.
- The ability to generate future cash flows is analyzed through such as Return on Investment (ROI), Internal Rate of Return (IRR).
How would you assess whether a company is a good target for acquisition?
- Rapid growth, strong market position, big potential synergies.
M&A’s dynamic nature (risks & challenges)
Market fluctuations - because the M&A activities are heavily influenced by market & economic conditions.
Complex transactions - where every transaction is different, having its own unique valuation methods, strategy etc.
Accounting standards that are related with M&A?
IFRS 3
- defines a ‘Business Combination’
- acquisition method
- goodwill treatment
IFRS 10
- defines control
- consolidated requirements
- non-controlling interests
- loss of control
Recent developments / news of M&A (in Malaysia)
- “More M&A are expected in 2024”
- sectors that become interested in the M&A space: that are backed by government policies. - Malaysia becomes an interesting place for M&A due to:
- emerging market with good growth potential
- we have established business structure - Good level of M&A activities in sectors:
- healthcare & technology
- energy / resources.
