Mergers and Acquisitions Flashcards
What is a Merger?
The joining of two separate entities to form a new unified entity.
What are the Practical Challenges of a Merger?
Pre-Merger:
* Antitrust.
* Valuation.
* Negotiation.
* Due diligence.
Post-Merger:
* Layoffs.
* Cultural integration.
* Operational integration.
* Decreased employee productivity.
* Leadership disputes over strategy.
What is an Acquisition?
The absorption of one entity by another.
What is the Difference between a Friendly and Hostile Acquisition?
In a Friendly Acquisition:
- The Target Board agrees to the Acquirer’s terms.
In a Hostile Acquisition:
- The Target Board rejects the Acquirer’s terms, who then appeals directly to the Target’s Shareholders.
What is a Joint Venture?
- A strategic partnership between two or more entities;
- Who pool resources into a jointly-owned vehicle;
- To perform a specific business activity.
What is Synergy?
The notion that the combined value of two entities is exponentially greater than their individual value.
What are the Different Types of Synergy?
- Cost Synergy (economies of scale, bargaining power, cost sharing).
- Revenue Synergy (cross-selling, access to distribution, access to brand value).
Although, the concept of synergy applies more broadly than these two categories.
Why would a Company acquire another Company?
- Innovate.
- Elimiate competition.
- Diversify business operations.
- Consolidate strength in a given market.
- Achieve greater control over the value chain.
- Gain access to exclusive assets, e.g. talent, real estate, or intellectual property.
What are the Advantages and Disadvantages of a Share Purchase Strategy?
Advantages:
- Simpler execution.
- Transfer of control.
- Transfer of employees.
- Lower dependence on third-party consents.
Disadvantages:
- Integration.
- Antitrust concerns.
- Higher due diligence costs.
- Assumption of all liabilities.
- Minority shareholders issues.
What are the Advantages and Disadvantages of an Asset Purchase Strategy?
Advantages:
- Exposure to select liabilities.
- Avoidance of antitrust issues.
- Avoidance of corporate control issues.
- Avoidance of existing contracts and commitments.
Disadvantages:
- Greater complexity.
- Greater dependence for third-party consents.
How can a Company raise Finance for an Acquisition?
- Loan.
- Bond.
- Share issuance.
- Capital reserve.
What are the Advantages and Disadvantages of Financing an Acquisition through Capital Reserves?
Advantages:
- No interest.
- No equity dilution.
- No transaction costs.
- Strong signal of financial health.
- Avoidance of restrictive covenants.
Disadvantages:
- Reduced liquidity.
- Opportunity costs.
- Limited buying power.
- Displeased shareholders.
What are the Advantages and Disadvantages of Financing an Acquisition through Share Consideration?
Advantages:
- Incentive alignment.
- Exploitation of high share prices.
Disadvantages:
- Equity dilution.
- Adverse market reaction.
- Complex valuation process.
- Adverse shareholder reaction.
When would a Seller prefer to Share Consideration to Cash Consideration?
- It believes the shares will appreciate.
- It seeks to maintain exposure to the Target.
What is the Commercial Purpose of a Letter of Intent?
- Establish exclusivity.
- Establish core terms.
- Preemptively air major issues.
- Overview and timetable next steps.
