Mergers and Acquisitions Flashcards
What is a pitchbook for an M&A
Promotes IB’s services. gives advice on potential targets or buyers, valuation, negotiation assistance.
Skilled advice hypothesis
IB’s help clients identify targets with synergies and negotiate favourable terms
Excecution house hypothesis
Banks simply execute what is required by clients.
What is a push transaction
deal initiated by the bank
what happens in a buy side push deal
client has to identify potential targets, identifying is time consuming. If target already in mind IB is execution house so lower returns, do not need to promote services
Types of M&A auction (2)
broad auction and targeted auction
what is a broad auction
find as many potential buyers as possible, more organisation and marketing
what is a targeted auction
focus on few buyers with good strategic fit and financial capability.
negotiated sale
direct contact with single buyer, less selling power. faster and more confidentiality, more flexible than auction.
Buy side work
identify potential targets, valuation, negotiation, draft contracts. If suitable company found, Memorandum of understanding signed by both parties presenting rationale of deal to client.
what happens in sell side push deal
either suggest clients to sell parts or whole company, unusual as lose business. Or suggest to sell subsidiary
Sell side work
High chance of transaction completion. IB produces selling memorandum ‘CIM’ selling the firms strategy. Valuation and identifying potential buyers. If interested, send them CIM, if interested further submit indication of interest.
What value does the IB create in the M&A process?
either as an execution house or identifying target producing most synergies.
How do M&A advisory fees work?
Retainer fee is non- refundable. Success fee on completion, as % of enterprise value. Midsize transactions use Lehman Formula: 5% of 1st $1m, 4% of 2nd m, 3% of 3rd m, 2% of 4th m, 1% over 4m. Small transactions, double Lehman.
