MERGERS AND ACQUISITIONS Flashcards
What is a broad auction?
A broad auction maximizes the universe of prospective buyers approached and is designed to maximize competitive dynamics, thereby increasing the likelihood of best offer.
What is a targeted auction?
A targeted auction focuses on a few clearly defined buyers that have been identified as having a strong strategic fit or desire, as well as financial capacity to acquire.
What are the Advantages / Disadvantages of a Broad Auction?
ADV: Heightens competitive dynamics Maximizes probability of max sale price Helps ensure all bidders are approached Limits negotiating leverage Enhances comfort regarding fiduciary duty to maximize shareholder value
DISADV: Difficult to preserve confidentiality Greatest risk of business disruption Tainted product if M&A does not succeed Risk of business information leaking to competitors
What are the Advantages/Disadvantages of a targeted auction?
ADV:
Higher likelihood of confidentiality
Reduces business disruption
Reduces failed auction by selecting ‘partner’
Maintains competitive dynamic perception
Serves as market check for fiduciary duty
DISADV: Potentially excludes viable buyers Leaves money on table (potentially) Less competition Negotiating leverage
What is an M&A Sale Process?
It determines the ultimate price a buyer is willing to pay for a target company
What are the steps in an M&A Process?
- Organization + Preparation
- First Round
- Second Round
- Closing
What is part of the Organization + Preparation Round?
- Identifying the seller objectives and determine appropriate sale process
- Perform sell-side advisor due diligence and preliminary valuation analysis
- Select buyer universe
- Prepare marketing materials
- Prepare confidentiality agreement
What are the two main marketing documents for the first round of an M&A process?
A Teaser and a CIM (Confidential Information Memorandum)
What is a CIM?
A CIM is a written description of the target (50+pg) that serves as the primary marketing document for the target in the auction.
- exec summary, investment considerations, detailed information about the target, sector customers, and suppliers
What is a confidentiality agreement?
Is a legally binding contact between the target and the prospective buyers that governs the sharing of confidential company information.
What is involved in the first round?
Contact the prospective buyers
Negotiate and execute confidentiality agreements with interested parties
Distribute confidential information memo and initial bid procedures letter
Prepare management presentation
Set up data room
Prepare stapled financing package
Receive initial bids and select buyers to proceed to second round
What is a stapled financing package?
Provides an assessment of the target’s leverage capacity and is a financial structure that is viable for the firms.
How do you maximize accretion?
Minimize purchase price, identify least expensive form of financing, identify significant synergies.
What is the formula for Pro-forma Combined Diluted EPS
Pro Forma Net Income / Pro Forma Diluted Shares
What is the formula for Accretion/Dilution
(Pro Forma EPS - Standalone EPS)
positive = accretion negative = dilution
