wk 4 - M&A

Question 1

What is internal structure in corporate restructuring

Answer 1

How departments / Divisions are set up and work with each other

Question 1

What is Corporate Restructuring

Answer 1

Any action that reconfigures a company in 1 of 3 ways:
Internal Structure
Heirarchical Structure
Operational Processes

Question 2

What is Heirarchical structure in corporate restructuring

Answer 2

How decision making works within companies
Who reports to who

Question 3

What is operational Processes in corporate restructuring

Answer 3

How the company does business
Changing core business functions or competencies

Question 4

What is the business life cycle

Answer 4

1. Launch
2. Growth
3. Shake-Out
4. Maturity
5. Decline

Question 5

What is launch in the business life cycle

Answer 5

Initial phase
High attrition
Slow but increasing sales
Typically, unestablished brand
Often operates in loss with need for investment

Question 6

What is Growth in the business life cycle

Answer 6

Rapid increase in revenue as company gains traction
Initial Signs of profit / break even (rev>cost)

Question 7

What is shake-out in the business life cycle

Answer 7

Sales keep increasing but at a slower rate
Saturation of potential market
Company starts to accrue ‘Free Cash Flow’

Question 8

What is Maturity in the business life cycle

Answer 8

Sales start dropping
Lower margins / increased overheads
Free cash generally owed to creditors / shareholders

Question 9

What is Decline in the business life cycle

Answer 9

Usually marks the end
Sales in decline due to:
- Change in market conditions - fail to adapt
- Cash flow starts declining
- Inability to pay debts - insolvency
Creates a NEED to restructure

Question 10

What is operational restructuring

Answer 10

Changes in the composition of a firms asset structure by aquiring new businesses
Sales of existing businesses

Question 11

What is Financial restructuring

Answer 11

Changes in a firms capital structure relating to debt and equity
- How many loans outstanding
- How many shares publicly traded
e.g. Aug 2024: Nvidia $50bil stock buyback

Question 12

What are Mergers and Acquisitions

Answer 12

Companies buying each other
One option when undertaking corporate restructuring
Can be done for operational or financial purposes
Represents the largest and most significant form of corporate spending / investment
Incredibly risky, costly in terms of money and time

Question 13

What is a merger

Answer 13

2 separate entities combine to form a new entity

Question 14

What is an Aquisition

Answer 14

1 firm (the Acquirer) buys and integrates another firm and incorporates their business into their portfolio
e.g. Microsoft acquired Activision Blizzard for $68.7Billion

Question 15

Why does M&A occur

Answer 15

Synergy is the most common justification
Synergy: The incremental benefit a firm expects to materialise when M/A another firms in excess of both firms operating independently

Question 16

What are the 2 types of Synergy

Answer 16

Financial - Reduced cost of capital
Operational - Revenue-enhancement & cost reduction

Question 17

What are Financial Synergies

Answer 17

Improvement in financing companies
- makes things cheaper (FoP)
- Reduced cost of Capital (minimum required return for profitability)
Tax Benefits:
- Tax shields using net operating costs of target
- Tax inversion - Lower effective corporate tax rates
Increase Debt Capacity - Ability to borrow more
Diversification of Business Streams - Lower cost of Equity

Question 18

What are Operational Synergies

Answer 18

Incremental gains that enhance rev generation
Streamline expenses (greater than when companies are separate)

Question 19

What are the Sources of Synergy

Answer 19

Growth Opportunities
Economies of Scale
Economies of Scope
Expertise Gains
Efficiency Gains
Monopolistic Gains
Diversification / Consolidation
Vague before deal takes place based on expectation/forecasting/assumptions