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Corporate > Quick Fire M&A > Flashcards

Quick Fire M&A Flashcards

1
Q

Acquirer

A

The firm that is purchasing a company in an acquisition – the buyer.

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2
Q

Accretion

A

An improvement in per share metrics post-transaction (after issuing additional shares).

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3
Q

Acquisition

A

An improvement in per share metrics post-transaction (after issuing additional shares).

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4
Q

Amalgamation/Consolidation

A

The joining of one or more companies into a new entity. None of the combining companies remains; a completely new legal entity is formed.

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5
Q

Asset Deal

A

The acquirer purchases only the assets of the target company (not its shares).

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6
Q

Backward integration

A

A company acquires a target that produces the raw material or the ancillaries which are used by the acquirer. It intends to ensure an uninterrupted supply of high-quality raw materials at a fair price.

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7
Q

Bootstrap Effect

A

A company acquires a target that produces the raw material or the ancillaries which are used by the acquirer. It intends to ensure an uninterrupted supply of high-quality raw materials at a fair price.

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8
Q

Cash Consideration

A

The portion of the purchase price given to the target in the form of cash.

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9
Q

Compensation Manipulation

A

One of the poor reasons to make a merger. Management compensation is according to company performance benchmarked to other companies, so an increase in the size of the company often means an increase in salary for management.

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10
Q

Conglomerate

A

M&A activity of a target into a sector/market which is unrelated to their original business(es)

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11
Q

Dilution

A

A worsening of per share metrics post-transaction (after issuing additional shares).

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12
Q

Economies of Scale

A

Fixed costs decrease because merged companies can eliminate departments with repetitive functions.

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13
Q

Economies of Scope

A

A gain of more specialized skills or technology due to a merger.

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14
Q

Empire Building

A

One of the poor reasons to make a merger. Management decides to make a merger to increase the size of the company purely for the purpose of ego or prestige.

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15
Q

Equity Issuance Fees

A

Underwriting fees charged by investment banks to issue equity in connection with the transaction

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16
Q

Excess Purchase Price

A

The value of the purchase price over and above the net book value of assets (total purchase price minus the net book value of assets).

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17
Q

Fair Value Adjustments

A

The increase or decrease in the net book value of assets to arrive at the fair market value.

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18
Q

Forward Integration

A

A company acquires a target that either makes use of its products to manufacture finished goods or is a retail outlet for its products.

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19
Q

Full diluted Shares outstanding

A

The number of shares a company has outstanding after all options, convertible securities etc are exercised

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20
Q

Goodwill

A

Excess purchase price over and above the target’s net identifiable assets (after adjustments)

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21
Q

Horizontal Integration

A

Merging of Companies in the same lines of business, usually to achieve synergies.

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22
Q

Hostile Takeover

A

Board of directors and management did NOT approve of the takeover. They will advise shareholders not to accept the offer

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23
Q

Identifiable Assets

A

An asset that can be assigned a fair value; both tangible and intangible.

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24
Q

Merger/statutory

A

Acquirer acquires all of the target’s shares or assets and then the target company ceases to exist

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25
Q

Net book value of assets

A

Book value of assets minus book value of liabilities

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26
Q

Offer Price

A

The price offered per share by the acquirer

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27
Q

Pro forma shares outstanding

A

Number of shares outstanding after the transaction has closed and additional equity has been issued

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28
Q

Purchase Price Allocation

A

The breakdown of the total purchase price between

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29
Q

Restructuring Charges

A

Fees or charges related to early debt repayments that are part of a restructuring

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30
Q

Revenue Enhancements

A

Increases in revenue that are expected due to cross-selling, up-selling, pricing changes, etc.

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31
Q

Share Exchange Ratio

A

The offer price divided by the acquirer’s share price.

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32
Q

Timing of Synergies

A

How long it is estimated to take to realize the synergies in the transaction.

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33
Q

Bankable Report

A

Due diligence report which analyses the company in summary form, with important findings. Not as concise as a RED FLAG REPORT

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34
Q

Basket

A

Contract clause which prevents other party from making minor claims; warranty claims can only be asserted if the aggregate of all claims exceed a certain limit

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35
Q

Beauty Contest

A

Selection process for advisors (IBs, Lawyers, auditors)

36
Q

Benchmark

A

pre-defined reference value used to assess performance of a company - benchmarks are then used in purchase agreement for legal consequences like earn out payment obligations

37
Q

Best efforts

A

Part of a contractual obligation to use parties best efforts to get the transaction done/desired outcome

38
Q

Bible

A

Collection of all documents related to a transaction, assembled after closing

39
Q

Bid Letter

A

Offer from an interested party in an auction procedure

40
Q

Big 4

A

Largest Auditors - Deloitte, Pricewater-houseCoopers, EY and KPMG)

41
Q

Bluechips

A

Technical: Shares in major companies listed on index like Dow Jones or FTSE 100 (Large Cap)

Informal: Clients of exceptional importance

42
Q

Boilerplate

A

Clauses included as standard in almost every contract (sever ability, requirement for the written form, list of contact persons, governing jurisdiction). Not negotiated heavily

43
Q

Bona fide

A

In good faith

44
Q

Break-up fee

A

Obligation on party to pay sum if transaction falls through for reasons for which they are responsible. Covers wasted costs (advisors, etc). Agreed in LOI, or after signing to protect party from others failure to close

45
Q

Capacity Opinion

A

Formal statement regarding the legal capacity of a contracting party and the power of representation held by specific persons acting on the party’s behalf

46
Q

Capex

A

Capital Expenditure (Investment expenses; investment spending)

47
Q

Carve-out

A

Separating parts of a company or assets from target or vendor, maybe before transaction

48
Q

Certified Accounts

A

Confirmed and audited financial statements

49
Q

Chain of title

A

Historically complete proof of share ownership

50
Q

Chinese Wall

A

Barrier in an organisation to prevent exchange of information where advisors is advisors two bidders or related parties, for example.

51
Q

Closing

A

Completion of the transaction once all closing conditions are met. Title to SHARES or ASSETS is transferred to buyer against payment of consideration. Preceded by conclusion of sale and purchase agreement (signing)

52
Q

Closing Actions

A

Action to be taken on or before the closing date; typical examples include payment of purchase price, resignation of target’s board members

53
Q

Comfort Letter

A

Also called aLetter of Comfort, in which (usually) the parent
company makes a commitment to provide theTarget with the
necessary funding in the event of economic difficulties (binding
letter of comfort). In the case of a non-binding letter of comfort,
the parent company merely makes an expression of goodwill
which has no legal force, although it is normally seen as creating
a moral obligation

54
Q

Confirmatory Due Diligence

A

Final phase ofDue Diligence, usually carried out just prior
toSigning. It provides an opportunity to resolve the remaining
outstanding issues or ones that have newly arisen, or to verify
assumptions.

55
Q

Consortium

A

An association of several companies formed to implement a joint
project; the collaboration ends once the objective has been
reached, or is replaced by a longer-term agreement (e.g. a
Joint Venture)

55
Q

Crown Jewel Defence

A

Defence mechanism against a Hostile Takeover; to make
the Target as unattractive as possible to the attacker, its most
valuable Assets or equity interests are sold to third parties.
Adopting this strategy may considerably weaken the target

56
Q

Data Room Index

A

Resembling a table of contents, this index lists all the documents
that can be inspected in theData Room (arranged by topic or
other criteria).

57
Q

Data Room Rules

A

These are the ground rules for using theData Room. In the case
of aPhysical Data Room, they normally specify the opening
hours, the persons authorised to enter the room and the permitted
number of queries relating to the documents. They also indicate
whether documents may only be inspected or also copied. In a
Virtual Data Room, the print function may be deactivated and
it may not be possible to save documents or take screenshots.
Since the data room rules are monitored electronically in a virtual
data room, supervision is stricter.

58
Q

Deadlock

A

Describes an (often lengthy) impasse at shareholder or board
level. The parties involved block each other due to having equal
shareholdings, vetoes or other special rights. Since it is not
possible to form a majority, decision-making breaks down.
Mechanisms to resolve a deadlock include aTexas Shoot
Out andRussian Roulette.

59
Q

Deal Breaker

A

Factor which results in negotiations breaking down if no solution
or agreement is found; it is the purpose ofDue Diligence to
identify possible deal breakers and highlight solutions for a
successful outcome.

60
Q

Debt/Equity Swap (DES)

A

Conversion ofDebt intoEquity; a debt for equity swap occurs
in connection with debt rescheduling.

61
Q

De Minimis

A

In a sale and purchase agreement, this refers to the amount
below which the buyer cannot assert warranty claims. De minimis
provisions are aimed at preventing the parties from making minor
claims and thus encourage a more constructive relationship. They
are generally combined with aDeductible orFirst Dollar rule
(see alsoBasket)

62
Q

Amortisation

A

decrease in value of intangible assets

63
Q

Disclosure Letter

A

Document in which the seller lists exceptions and qualifications to
its warranties (Representations & Warranties) (seeDisclosure;
General Disclosure;Specific Disclosure). If a large number of
(negative) circumstances are listed in a disclosure letter, this will
usually have a negative impact on the purchase price.

64
Q

Downstream Loan

A

Loan granted by a parent company to a subsidiary, e.g. in the
context of a Cash Pool. The opposite is anUpstream Loan

65
Q

Downstream Merger

A

Merger of a parent company into its subsidiary; the opposite is
anUpstream Merger. The merger of two sister companies is
aSidestep Merger.

66
Q

Draw-down

A

Accessing a loan or other payments previously agreed, e.g. in
the form of payments into a company’s free capital reserve; in
addition to drawing down cash, draw-down of services is also
possible, e.g. media services.

67
Q

Draw-down notice

A

Notification that the relevant party intends to make use of the
agreed funds (e.g. loan, contribution to the free capital reserve)

68
Q

Dual Listing

A

A situation where a company’s shares are listed on at least two
stock exchanges.

69
Q

Due Diligence

A

A detailed assessment of the proposed purchase. Typically broken
down intoLegal Due Diligence,Financial Due Diligence,Tax Due Diligence,Commercial Due Diligence andEnvironmental
Due Diligence. Due diligence is usually carried out by the prospective
buyer, when it is referred to asPurchaser Due Diligence. This is
partly due to the fact that in Anglo-American jurisdictions the
principle of “caveat emptor” (let the buyer beware) traditionally
places the onus on the buyer to examine goods before purchase.
The individual areas are covered by lawyers, tax advisors, auditors,
sector specialists and experts who specialise in these matters. The
aim of due diligence is to identify any unknown opportunities
and risks and also anyDeal Breakers. The findings of due
diligence are recorded in theDue Diligence Report and influence
the negotiations, in particular with regard to the warranties and the
purchase price. The downside of due diligence is that information
available in theData Room is often regarded as known to the
buyer. As such, the seller will usually wish to exclude any associated
D
39
warranty claims. If the seller carries out due diligence rather than
the prospective buyer, it is referred to asVendor Due Diligence.
For transactions of a certain size and depending on the importance
to the buyer, the latter’s management may ultimately be obliged
to conduct due diligence. If management decides not to carry out
due diligence, officers of the company may be exposed to personal
liability risk.

70
Q

Due Diligence Report

A

Report comprising all the key data, findings and recommendations
fromDue Diligence; it presents the results in an accessible way
for the buyer’s decision-makers and the financing banks. The
findings are usually summarised in the form of key statements
at the start of the report (Executive Summary)

71
Q

Early Stage Finance

A

Participation of aFinancial Investor at an early phase of a
company’s development, but after theSeed Finance stage. The
common feature of both stages is that the success of the company
is still very difficult to assess, meaning that investment involves
major risks. For this reason, an early stage investor will usually
insist on a substantial amount of equity in return for his investment.

72
Q

Earn-out

A

In an earn-out, the buyer agrees to make a variable payment
above and beyond the fixed purchase price. This element is
calculated as a function of the future performance of theTarget
and is dependent on a pre-defined reference metric being reached
or exceeded within a certain period of time. Earn-out clauses
enable the parties to bridge the gap between divergent purchase
price expectations. However, in such a situation the seller continues
to bear some of the target’s business risk afterClosing without
having the same ability to influence its development as in the
past. The seller will wish to have contractual safeguards in place
in this respect and against the threat of manipulation. This makes
it difficult for the buyer to integrate the target into its own
operations or to sell the company (or part of it) on, and often
gives rise to contentious negotiations. In contrast, a seller holding
aDebtor Warrant participates in any higher proceeds in the
event that the firm is sold on to a third party, regardless of the
future performance of the target

73
Q

EBIT

A

Short for “earnings before interest and taxes”; EBIT (likeEBITA,
EBITDA andEBT) is a performance metric often used for
valuing a business and establishing a purchase price.

74
Q

EBITA

A

Short for “earnings before interest and taxes”; EBIT (likeEBITA,
EBITDA andEBT) is a performance metric often used for
valuing a business and establishing a purchase price.

75
Q

EBITDA

A

Short for “earnings before interest, taxes, depreciation and
amortisation”; likeEBIT,EBITA andEBT, EBITDA is a metric
often used for valuing a business and establishing a purchase price.

76
Q

EBT

A

Short for “earnings before taxes”; likeEBIT,EBITA andEBITDA,
EBT is a metric often used for valuing a business and establishing
a purchase price.

77
Q

Escrow Account

A

Fiduciary account, lawyer’s or notary’s escrow account or separate
bank account into which a portion of the purchase price is
transferred to act as security for potential warranty claims. If part
of the purchase price is retained by the buyer for a defined period
of time as security, this is referred to as a Holdback.

78
Q

Evergreen Contract

A

Contract that is automatically renewed unless it is terminated by
a certain date

79
Q

Exclusivity Agreement

A

The seller agrees to negotiate solely with a single prospective
buyer for a specified period and to provide (additional) information
exclusively to that party. A fixed contractual penalty is often agreed for the event that the exclusivity agreement is breached.
The penalty is intended as compensation for the costs incurred by the prospective buyer.

80
Q

Execution Copy

A

Final version of an agreement for Signing.

81
Q

Fact Book

A

Description of a company used to provide information to potential
investors, e.g. prior to an IPO, corporate action or M&A process. A fact book may include both general and specific corporate information, financial metrics, market analysis and descriptions of existing investment potential.

82
Q

Fair Disclosure

A

Describes the way in which a matter must be disclosed to the
buyer in order that it can be deemed to be known, e.g. ensuring
that documents in the data room are named and arranged
correctly. Since the concept comes from Anglo-American law,
particular emphasis should be placed on including a precise
definition in the contract.

83
Q

Fairness Opinion

A

Report by an independent expert as to whether the provisions negotiated by the parties (in particular the purchase price) are fair from a financial point of view; this enables the boards of the contracting parties to protect themselves in law and document the fact that they entered into the transaction on appropriate terms.

A fairness opinion can also help to dispel any concerns felt by
shareholders if their willingness to sell is crucial to the transaction.

84
Q
A

Corporate (11 decks)

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