Mergers and Acquisitions Flashcards
Why would two companies want to merge?
- The synergy would allow them to be more efficient
- Consolidate operations
- Gain brand recognition
Why would two companies not want to Merge?
- Investment Banking fees are too high
- The synergy they are hoping to gain doesn’t occur
What do Bankers do during a Sell-Side M&A deal?
- Meet with the client and collect informational documents
- Come up with a potential list of buyers that they can send the marketing material over to.
- Send over an NDA to companies that show interest which allows them to send over more confidential informations
- Set a deadline for potential buyers to send over an IOI.
- Negotiate terms
What do bankers do during a Buy-Side deal
- Research on a very large number of acquisition targets based on what the company is looking for
- Share and cut list down while working with client
- Have meetings with each company and see which one they should pursue.
- Work with client to select final acquisition target and work to negotiate structure of deal.
Synergies
-Improvements that result from the combination of two companies and usually can provide a higher EPS.
Which will normally pay a higher price, strategic buyers or financial buyers.
-Strategic buyers usually will pay a higher price because they would like to improve their existing business.
What is a Fairness Opinion
-Usually a document made by an investment bank to measure the overall “fairness” of a deal.
What are two companies that you think should merge?
-Dunkin Donuts and Burger King
Geographical Synergies- Dunkin Donuts is a major American franchise while Burger King is global. Dunkin can benefit by using Burger King’s geographical connections to expand globally. Also can have supply chain synergies, they save on shipping costs.
What is a stock swap?
-Stock swap is when the company being acquired accepts payment in form of stock from the merged company.
What is the difference between shares outstanding and fully diluted shares?
- Shares outstanding are the actual number of shares that are issued in the market.
- Fully diluted shares are the number of shares outstanding, taking into account all the options in the money being exercised. Also take into account that a company is going to use that revenue to repurchase as many shares in the open market.
How do you calculate the number of fully diluted shares?
- Treasury stock method
- find number of current shares outstanding
- adding number of options/warrants that are in the money
- subtract number of shares that could be repurchased
What is a cash offer?
When you offer to pay the full amount in cash
Would you be able to purchase company at current stock price?
-No, usually to become a majority stakeholder in a company you would have to pay a premium.
Why pay in stock versus cash?
- If you pay in cash it would be immediately taxed, therefor may not be as attractive.
- Maybe management team from acquired company still wants to have a say in what goes on.
What is a Tender Offer?
-Tender offer is when acquiring company offers to pay a premium for shareholders to get a majority stake in a company.
